I am pleased to join with Jerry Mashaw, president of the National Academy of Social Insurance, to introduce this policy research seminar on the relationship between Social security Disability Insurance and workers' compensation. I would like to express our appreciation to the staff of Social security and the Academy who put together this excellent program.
The Social security Administration (SSA) and the National Academy have worked together for many years to improve our knowledge and understanding of workers' compensation. Since 1997 the National Academy has compiled much of the basic national data on workers' compensation that was previously prepared by our agency. The Social security Administration has provided both financial and analytical support to this effort, which is part of the Academy's larger research initiative on workers' compensation. Thus, this seminar continues a longstanding partnership.
The relationship between Social security Disability Insurance (DI) and workers' compensation is important to my agency for many reasons. And it is also of personal interest as I have worked in companies that have been a buyer, broker, insurer, and reinsurer of workers' compensation as well as being a banker to several workers' comp companies.
Disability Insurance and workers' compensation are the country's two largest disability programs. In 2002, the DI program paid $66 billion in benefits to 5.5 million disabled workers and their dependents. In the same year, workers' compensation paid out $53 billion-$29 billion in wage-loss compensation and $24 billion in medical benefits. It is vital that these two big programs work in tandem.
Because Disability Insurance and workers' compensation are so large and have overlapping goals, it is not surprising that many people receive benefits from both. In some cases, however, overlapping benefits can create excessive wage replacement rates and the resulting disincentives for achieving self-sufficiency. For this reason, the Social security Amendments of 1965 established the workers' compensation offset. The offset assures that the combined amount of a disabled worker's and family's benefit from Social security and workers' compensation (or another public disability benefit) will not exceed 80 percent of the worker's average current earnings.
Although the issue of excessive wage replacement remains salient today, many things have changed in the past 40 years. For example, in 1965, total cash benefits paid by workers' compensation were three-fourths of those from Disability Insurance. Today, they are less than half as large. Since 1993, up to 85 percent of Social security benefits have been subject to federal income taxation, while benefits from workers' compensation have remained taxexempt. This disparate tax treatment can create horizontal inequities. …