Short-Range Actuarial Projections |
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ACTUARIAL STUDY NO. 119
by Chris Motsiopoulos and Richard B. Tucker | |||||
D. DISABILITY INSURANCE BENEFIT PAYMENTS
1. Average Benefit
Tables III.D1-III.D11 show quarterly projections of the average benefit in force, awarded, terminated, and in current-payment status, for the various disability categories.
The average benefit in force at the end of a quarter is calculated by dividing the total amount in force by the number of beneficiaries in force. The total amount in force for each type of beneficiary is projected quarterly, by adding the amount awarded during the quarter to the amount in force at the beginning of the quarter, and subtracting the amount terminated during the quarter.
The total amount awarded during a quarter is calculated by multiplying the number of awards by the average amount awarded (see Section C).
The total amount terminated during a quarter is calculated by multiplying the number of terminations by the average amount terminated. The model assumes the average amount terminated is proportional to the average amount in force. To estimate the average amount terminated, ratios based on historical trends are applied to the average amount in force at the beginning of the quarter.
The average amount in force generally increases over each quarter, for each type of beneficiary, as newly awarded beneficiaries with higher benefits replace terminating beneficiaries with relatively lower benefits. A large increase occurs in the fourth quarter as a result of the cost-of-living adjustment.
The model assumes the average amount in current-payment status is proportional to the average amount in force. Normally, in order to estimate the average amount in current-payment status, ratios based on historical trends are applied to the average amount in force at the end of the quarter. However, the projected levels of these ratios are further adjusted, in order to account for changes in the average benefit amount due to the special administrative action undertaken by SSA beginning in 2001, to identify and award benefits from the DI Trust Fund to a substantial number of current and former recipients of Supplemental Security Income (SSI) benefits whose disability-insured status under the DI program was not previously recognized. In theory, the effects of such additional awards on average benefit amounts should be accounted for in the calculation of the average benefit awarded and the average benefit terminated. In practice, because of the modeling difficulties inherent in such approach, and the temporary nature of this administrative action, the adjustment is made in the calculation of the average benefit in current-payment status.
2. Benefits In Current-Payment Status
Tables III.D12-III.D17 show quarterly projections of current-payment benefits, for the various disability categories. Total current-payment benefits during the period are calculated as: (i) the number of beneficiaries in current-payment status at the midpoint of the period, multiplied by (ii) the average benefit in current-payment status at the midpoint of the period, multiplied by (iii) a factor developed from historical trends to account for any seasonal fluctuations—such as those found in payments to student children due to school-attendance requirements.
The number of beneficiaries and average amount at the midpoint of the period are estimated as a weighted average of corresponding figures at the beginning and end of the period.
In 2004, roughly 92 percent of all current-payment benefits were made to disabled workers; roughly 1 percent went to spouses of disabled workers, and 7 percent went to children. A breakdown of the dollar amounts follows:
Disabled workers:
Spouses:
Children:
3. Benefits In Non-Current-Payment Status
Table III.D18 shows the annual projection of non-current-payment benefits to disabled workers and auxiliaries. The largest component of benefits in non-current-payment status to disabled workers consists of benefits payable for periods of retroactive entitlement1. Retroactive payments are projected annually as: (number of awards to disabled workers) x (average award amount) x (average number of months of retroactive entitlement) x (cost-of-living adjustment factor2) x (factor to allow for all other components of non-current-payment benefits3). The average number of months of retroactivity decreased gradually from 10.9 in 1996 to 9.7 in 2000. It then increased rapidly to 11.4 in 2004, as a result of a special administrative action undertaken by SSA, as explained in section one earlier. This action has resulted in increased numbers of awards with years of retroactivity. The average number of months of retroactivity is expected to increase to almost 13 months by 2009, before returning rapidly to historical levels following the processing completion of this special disability workload.
The model assumes benefits in non-current-payment status to auxiliaries are proportional to retroactive payments to disabled workers. Assumed ratios based on historical trends are used to project such benefits.
Projected quarterly benefits in non-current-payment status are derived from annual totals by applying an interpolation formula. Tables III.D19-III.D22 summarize quarterly current-, non-current, and total benefits for the various disability categories.
1A person may be entitled to monthly benefits retroactively, in certain disability cases, for months before the month in which a disability application is filed—up to 12 months of retroactive payments are allowed in these cases. Retroactive benefits may also be payable due to delays in processing a disability claim.
2This factor accounts for retroactive benefits that may be payable at a rate less than the amount payable at the time of award, due to intervening benefit increases. For example, a disabled worker entitled to 15 months of retroactive benefits may be entitled to 10 monthly payments of $515, plus 5 monthly payments of only $500 that were payable before a 3 percent benefit increase.
3This factor is used to equate historical non-current-payment benefits to the product of the first 4 components, since the short-range model accounts for more than just "pure retroactivity". Benefits in non-current-payment status may include recovery of disability overpayments or other unpredictable quantities.