If you had to name one of the fastest growing segments of the Medicare population, what would it be? I imagine most would guess the baby boomer generation.

However, few would think of these baby boomers as beneficiaries entering the system through the Social Security Disability Insurance (SSDI) program, or that they are often the youngest, poorest and most expensive to treat of all Medicare recipients. Disability has become a troubling backdoor into the system for those worried about Medicare's fiscal sustainability.

Those deemed permanently disabled are allowed to enter Medicare (and Medicaid if their income qualifies) after 24 months of disability and after clearing a review process. Although SSDI has long been on the radar screen of policymakers and Congress for its expensive outlays and growing program size, it recently caught Washington's eye due to a Congressional Budget Office (CBO) report issued on July 16.

The large number of SSDI beneficiaries being funneled into Medicare is expanding well beyond the government's ability to pay for it. Covering more than 8 million disabled Americans, it has expanded six-fold since 1970, with outlays for benefits growing by a factor of nine. This has presented yet another fiscal challenge not only for the SSDI but for Medicare as well, which has absorbed the disabled, most of whom don't have private health insurance.

Here's the CBO’s summary of Medicare’s woes related to beneficiaries qualifying for the program through SSDI:

"Since 2009, the program has paid out more each year in benefits than it received in dedicated revenues. In 2011, total benefit outlays for disability insurance were $128 billion, or 0.86 percent of gross domestic product (GDP); by contrast, the program’s revenues totaled about $94 billion, or 0.63 percent of GDP."

In addition to concerns about the growing $34 billion deficit in the program, a surge in recent years of disabled workers into Medicare has raised the hackles of conservative politicians, who claim that it's too easy to qualify for disability payments.

The CBO, in its analysis of the Social Security Disability Insurance growth, stated there are a number of reasons why the program has grown in recent years. The benefit itself has risen over time: from $560 per month to $1,050 per month (in 2010 dollars) over the past 40 years. Then there's the lingering and persistent unemployment in the aftermath of the Great Recession, which is far from over. As jobless benefits expire, disability payments are appealing for those who are disabled and can't find work. There are also millions of workers entering their 50s, when health issues often become more severe and employment opportunities decline. Since baby boomers represent the second-largest generation in American history ("Millenials" are the largest at 95 million), with the peak years of the generation entering their sixth deacade, there are simply more disabled people who can qualify for disability.           

According to the CBO study:

"When jobs are plentiful, some people who could qualify for the DI program may choose instead to work. Conversely, when jobs are scarce, such as in economic downturns, some people with disabilities may find that their employment opportunities are especially limited, and they will instead choose to apply for DI benefits."      

You need to look beyond the recent economic malaise and political turmoil to understand why the disability program is causing fiscal impairment to Medicare. The numbers are compelling.

According the Centers for Medicare & Medicaid Services, people with disabilities are the single-fastest growing group in the Medicare population, representing 17 percent of the total number of beneficiaries. Since there's a 3 in 10 chance of becoming disabled before reaching retirement age, the number of those who may qualify for Medicare through disability is potentially large. In applying some very rough math to the 77 million people in the baby boomer generation, that's 23 million people who may enter the system.

Much of the fiscal imbalance is due to Congress raising disability benefits over time. Medicare was first expanded to cover the permanently disabled in 1972, and again in 1984. The Affordable Care Act also recently augmented coverage.

Although Medicare was originally established as a medical program strictly for those in retirement, the disability backdoor has allowed people who are typically younger, sicker and poorer than the average Medicare beneficiary into the program. Their hospitalization rates are higher, and they cost more than $1,000 a year more to treat than the general population, reports CMS. Nearly 90 percent of the disabled reported being diagnosed with one or more chronic conditions, according to an analysis by Washington State University.

There are a number of ways to tackle the SSDI–Medicare problem. The CBO suggested raising the Social Security tax to cover more disability program costs, changing the eligibility rules, increasing the benefit waiting period from 5 to 12 months and reducing the growth of benefits. It will be important to watch proposals from policymakers on how to reform disability insurance. Will qualifications be tightened? Will benefits be reduced or means tested?

While it's unlikely that the SSDI–Medicare connection will take center stage in the possible debates on policy reforms next year, it will be on the table in an overall effort to cut Medicare operating expenses. Along the way, Congress will have to make some tough decisions on who qualifies for disability and how much taxpayers are willing to pay to support the program over time. 

MedicareNewsGroup.com (MNG) original articles and Medicare Matters news summaries can be reprinted or republished with credit to the Medicare NewsGroup. To use our content, simply copy and paste text from the MNG website. Use of our content is done in compliance with our Terms and Conditions but does not extend to material from other sources that are subject to their copyright.

John is the award-winning author of 13 books and is a personal finance columnist/blogger for Reuters. His columns have been published in newspapers on five continents and he has appeared on various broadcast outlets including NBC, CNN and Bloomberg TV. He has earned 18 awards for his columns and investigative reporting, including the National Press Club award for Consumer Journalism.  

MedicareNewsGroup.com (MNG) original articles and Medicare Matters news summaries can be reprinted or republished with credit to the Medicare NewsGroup. To use our content, simply copy and paste text from the MNG website. Use of our content is done in compliance with our Terms and Conditions but does not extend to material from other sources that are subject to their copyright.