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Disability benefits add to Social Security woes; Trust fund faces depletion by 2017

Laid-off workers and aging baby boomers are flooding Social Security's disability program with benefit claims, pushing the financially strapped system toward the brink of insolvency.

Applications are up nearly 50 percent over a decade ago as people with disabilities lose their jobs and can't find new ones in an economy that has shed nearly 7 million jobs.

The stampede is causing a growing backlog of applicants and worsening the financial problems of a program that's been in the red for years.

New congressional estimates say that, unless Congress acts, the trust fund that supports Social Security disability will run out of money by 2017, leaving the program unable to pay full benefits. About two decades later, Social Security's much larger retirement fund is projected to run dry as well.

Much of the focus in Washington has been on fixing Social Security's retirement system. But the disability system is in much worse shape, and its problems defy easy solutions.

The trustees who oversee Social Security are urging Congress to shore up the disability system by reallocating money from the retirement program, just as lawmakers did in 1994. That would provide only short-term relief at the expense of weakening the retirement program.

Claims for disability benefits typically increase in a bad economy because many disabled people get laid off and can't find a new job.

This year, about 3.3 million people are expected to apply for federal disability benefits --1 million more than a decade ago.

"It's primarily economic desperation," Social Security Commissioner Michael Astrue said in an interview. "People on the margins get bad news in terms of a layoff and have no other place to go, and they take a shot at disability."

The disability program also is being hit by an aging population -- disability rates rise as people get older -- as well as a system that encourages people to apply for more generous disability benefits rather than waiting until they qualify for retirement.

Retirees can get full Social Security benefits at age 66, a threshold gradually rising to 67. Early retirees can get reduced benefits at 62. But those who qualify for disability can get full benefits, based on their work histories, even before 62.

Also, people who qualify for Social Security disability automatically get Medicare after two years, even if they are younger than 65, the age when other retirees qualify for the government-run health insurance program.

In improving the disability system, policymakers face two major issues: Legitimate applicants often have to wait years to get benefits while many others get payments they don't deserve.

Last year, Social Security found $1.4 billion in overpayments to disability beneficiaries, mostly to people who got jobs and no longer qualified, according to a recent report by the Government Accountability Office, the investigative arm of Congress.

The deficit reduction package enacted this month would let Congress boost Social Security's budget by about $4 billion over the next decade to invest in programs that identify people who no longer qualify for disability benefits.

The Congressional Budget Office estimates that increased enforcement would save nearly $12 billion over the next decade.

At the same time, the application process can be a nightmare for legitimate applicants. About two-thirds of initial applicants are rejected. Most drop their claims, but for those willing go through an appeals process that can take two years or more, chances are good they eventually will get benefits.

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