The growth in the Social Security Disability rolls: a fiscal crisis unfolding.

M ore than 80 percent of all nonelderly adults in the United States are insured against the risk of being unable to work because of a physical or mental disability by the Social Security Disability Insurance (DI) program. To be insured for DI benefits, a person must have worked in a job covered by Social Security in at least five of the ten most recent years. To be awarded benefits, an individual must have a medically determinable physical or mental impairment that is expected to result in death or to last for at least a year and that prevents the person from engaging in a “substantial gainful activity.” During the past two decades, the fraction of individuals receiving Disability Insurance benefits has grown substantially, as shown in Figure 1. In 1985, 2.2 percent of individuals between the ages of 25 and 64 were receiving DI benefits, but by 2005 this fraction had risen to 4.1 percent. If recent entry and exit rates continue in the years ahead, then more than 6 percent of the nonelderly adult population will soon be receiving DI benefits. The rapid expansion of the beneficiary population has three main causes. First, a set of congressional reforms in 1984 to Disability Insurance screening led to rapid growth in the share of recipients suffering from back pain and mental illness. Because these disorders have comparatively low mortality, the average duration of disability spells—and hence the size of the recipient population—has increased. Second, a rise in the after-tax DI income replacement rate—that is, the ratio of disability income to former labor earnings—strengthened the incentives for work-