Understanding the Basics of Social Security Disability Insurance (SSDI)
By Don Drake, Connelly Law Offices, Ltd.
"Our office frequently receives requests from individuals who want to understand the difference between SSDI and SSI," stated professional fiduciary and certified elder law Attorney RJ Connelly III. "These are two important social programs that provide financial assistance to individuals who cannot work due to a disabling medical condition. The federal government funds the Social Security Disability Insurance (SSDI) program from payroll taxes paid by workers. It offers financial support to eligible individuals who have worked long enough and recently enough to have paid Social Security taxes on their earnings. This program provides a safety net to individuals who cannot earn an income due to a debilitating illness or injury, ensuring they can still meet their basic needs and maintain their dignity."
"Conversely, Supplemental Security Income (SSI) is a needs-based program that benefits adults and children with low income and limited resources," stated Attorney Connelly. "It helps ensure that those most vulnerable in our society have access to the financial support they need to live a decent life. In today's blog, we will take a closer look at the basics of Social Security Disability Insurance. Our next blog will delve deeper into the SSI program, discussing its benefits and eligibility criteria."
Social Security payroll tax contributions primarily fund SSDI benefits. SSDI's payroll tax share is 0.9 percent of earnings up to Social Security's taxable maximum, which is currently $168,600 for 2024. Benefits are paid from the SSDI trust fund, which is separate from the much larger retirement and survivors' trust fund. As per the latest estimates, the SSDI trust fund will remain fully funded until 2096, which is the 75-year projection period.
Attorney Connelly said that to be eligible for SSDI benefits, individuals need to fulfill strict criteria, including earning work credits based on their total wages for the year. If they work and pay Social Security taxes, they can earn up to four credits yearly by earning a certain amount in wages. Starting in 2024, they will earn a credit for each $1,730 of earnings. The amount required to receive credits increases slightly each year to adjust for the rising average wages.
An individual cannot earn more than four work credits in a year, irrespective of their earnings. However, the credits earned will be added to their Social Security record and will not be lost if they switch jobs or remain unemployed for a period of time.
"Beneficiaries must have a medically determinable severe impairment lasting at least five months," Attorney Connelly continued. "The impairment should also be expected to last for at least twelve months or result in death. The severity of the impairment is assessed based on medical evidence and a range of factors like the symptoms, the treatment received, and the functional limitations it poses."
Attorney Connelly further stated that for a person to be eligible for SSDI benefits, they must demonstrate an inability to perform substantial work due to their physical or mental impairment. This impairment should prevent them from performing their previous work and any other substantial gainful activity (SGA). SGA is defined as earning a minimum of $1,550 per month ($2,590 for blind individuals) in 2024, which is about 40% of the median earnings of a full-time worker with a high school diploma but no college education. The SSDI program assesses the beneficiary's age, education, work experience, and transferable skills to determine their eligibility for benefits.
About SSDI Beneficiaries
According to data, the majority of SSDI beneficiaries have extensive work histories, with the average beneficiary having worked for 22 years and earned middle-class wages before becoming disabled. The beneficiaries are generally in late middle age, with approximately 79% being fifty or older and 44% being sixty. These individuals suffer from severe mental, musculoskeletal, or other debilitating impairments that make it difficult or impossible for them to work.
Despite their extensive work histories and the severity of their disabilities, beneficiaries' labor market prospects are abysmal, and their death rates are at least three times higher than the general population's. SSDI's strict eligibility criteria mean that the Social Security Administration (SSA) rejects most applicants.
The agency initially screens applicants for technical disqualifications, primarily for failing to meet SSDI's work history requirements. The remaining applications are submitted to each state's disability determination services (DDS) for medical and vocational evaluation. If denied at the DDS level, an applicant may appeal, with fewer than 1 in 3 applicants awarded benefits. The SSA regularly reviews beneficiaries to end SSDI payments to those who have recovered.
As stated earlier, SSDI beneficiaries can earn up to $1,550 a month in 2024 if they can work without any loss in benefits. Beneficiaries may earn unlimited amounts without jeopardizing their benefits while they test their ability to return to work during a nine-month trial work period and three-month grace period. Other program features, such as extended Medicare eligibility, are designed to help beneficiaries transition back into the labor market.
"Sadly, evidence suggests that few beneficiaries could earn more than insignificant amounts if they did not receive SSDI," said Attorney Connelly. "Only a minority of beneficiaries ever work again after qualifying for the program. Most applicants' earnings fall sharply before they turn to SSDI, and few beneficiaries can earn even close to the maximum allowed."
When you Turn 65
"When you are receiving SSDI, it is important to understand that these will convert to Social Security retirement benefits at a specific time, which is based on your birth year," stated Attorney Connelly. "A person does not need to take any action to initiate this conversion process, as it will happen automatically. They will continue to receive their monthly benefit check as always."
The age at which you can receive full retirement benefits depends on your birth year. If you were born before 1937, you would be eligible to receive full benefits at the age of sixty-five. However, if you were born after that year, you would have to wait longer to receive full benefits. For instance, if you were born in 1958, you would have to wait until you are sixty-six and eight months old to receive full retirement benefits.
It is also worth noting that your Social Security retirement benefit amount is calculated based on the assumption that you have reached full retirement age. For many beneficiaries, this means their retirement benefit amount is the same as their disability benefit amount. However, if you are receiving workers' compensation or a public disability benefit from a government job for which you did not pay Social Security taxes, this could reduce your actual Social Security disability payment amount.
If this is the case, the reduction in your payment amount may end when you reach full retirement age, and your monthly check amount may increase at that time. Attorney Connelly highly recommends that older adults stay informed about their Social Security benefits and plan accordingly.
Medicare and SSDI
Having a disability can be a daunting experience and obtaining health insurance can be crucial in getting the essential medical care required. Fortunately, if you receive SSDI, you automatically qualify for Medicare. However, there is a waiting period before you can begin to receive the benefits of Medicare.
Most SSDI beneficiaries qualify for Medicare coverage 24 months after eligibility for disability benefits. This two-year waiting period is intended to provide a safety net for individuals who may recover from their disability. However, this waiting period is waived for people with amyotrophic lateral sclerosis (ALS) or end-stage renal disease who become eligible for Medicare immediately.
And a quick reminder about Medicare: it is divided into distinct parts, including Part A (hospital insurance) and Part B (medical insurance). Part A is typically provided without a monthly premium, while Part B has a monthly premium of $174.70 in 2024, an increase of $9.80 from $164.90 in 2023. It is also important to note that there may be gaps in coverage that require supplemental insurance to cover out-of-pocket expenses. This will be deducted from your SSDI benefit.
Going Back to Work
If you receive Medicare coverage through SSDI, your coverage may end if your benefits stop due to an improvement in your medical condition. If the Social Security Administration (SSA) determines that you are no longer disabled, then your Medicare coverage linked to receiving SSDI will also end. The SSA conducts periodic reviews to determine your continuing medical eligibility for benefits.
Furthermore, if you are still medically eligible for disability benefits but can work and earn an income that exceeds a specific limit known (SGA) that we discussed earlier, your SSDI benefits may end. However, some work incentives Social Security offers can help you transition back to the workforce without losing your Medicare coverage.
For instance, during a trial work period, you can earn more than the SGA limit for nine months over five years and keep your SSDI and Medicare benefits. If you are working at or above the SGA level when the trial period ends, you will lose your SSDI benefits, but you can remain on Medicare and pay no Part A premiums for ninety-three consecutive months (seven years and nine months) if you still have a qualifying disability.
After this period, you can continue to receive Medicare coverage, but you will have to pay for Part A until you turn sixty-five and become eligible for Medicare based on age. It's important to remember that the rules regarding SSDI and Medicare can be complex, and it's best to consult with a Social Security representative, an elder law attorney, or a professional fiduciary to understand your options and how to navigate these benefits.
A Final Word
"The SSDI program has experienced a significant shift in the number of beneficiaries over the past decade," said Attorney Connelly. "For most of its history, the program has witnessed a steady increase in the number of beneficiaries, which can be attributed to demographic factors such as population growth, baby boomers aging into late middle age, and more women joining the workforce. These factors have contributed to a rise in the odds of becoming disabled, resulting in more people applying for and receiving SSDI benefits."
"In recent years, this trend has been reversed due to changing demographic factors," continued Attorney Connelly. "Records show that SSDI applications and awards have fallen by 40 percent since 2010, and the number of beneficiaries has decreased by approximately two million over the past ten years. This decline can be attributed to a range of factors, including improved medical treatments, changes to eligibility criteria, and stricter program administration. However, SSDI remains an important safety net for individuals with disabilities and their families."
Please note that the information provided in this blog is not intended to and should not be construed as legal, financial, or medical advice. The content, materials, and information presented in this blog are solely for general informational purposes and may not be the most up-to-date information available regarding legal, financial, or medical matters. This blog may also contain links to other third-party websites that are included for the convenience of the reader or user. Please note that Connelly Law Offices, Ltd. does not necessarily recommend or endorse the contents of such third-party sites. If you have any particular legal matters, financial concerns, or medical issues, we strongly advise you to consult your attorney, professional fiduciary advisor, or medical provider.