Short-Range Actuarial Projections of the Old-Age, Survivors, and Disability Insurance Program, 2001 Actuarial Study No. 115 Chris Motsiopoulos and Tim Zayatz, A.S.A.

## III. BENEFIT PAYMENTS

### D. DISABILITY INSURANCE BENEFIT PAYMENTS

#### 1. Average Benefit

Tables III.D1, III.D2, III.D3, III.D4, III.D5, III.D6, III.D7, III.D8, III.D9, III.D10 and 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-projections shown earlier.

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. 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.

#### 2. Current-Payment Benefits

Tables III.D12, III.D13, III.D14, III.D15, III.D16 and 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 2000, roughly 91 percent of all current-payment benefits were made to disabled workers; roughly 1 percent went to spouses of disabled workers, and 8 percent went to children. A breakdown of the dollar amounts follows:

Disabled workers:

• Male-\$28.8 billion (64%)

• Female-\$16.1 billion (36%)

• Total-\$44.9 billion (100%)

Spouses:

Children:

#### 3. Non-Current-Payment Benefits

Table III.D18 shows the annual projection of non-current-payment benefits to disabled workers and auxiliaries. The largest component of non-current payments 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 has decreased gradually from 10.9 in 1996 to 9.7 in 2000. It is projected to return to a more moderate historical level of 9.0 months.

The model assumes non-current payments to auxiliaries are proportional to retroactive payments to disabled workers. Assumed ratios based on historical trends are used to project such benefits.

Projected quarterly non-current payments are derived from annual totals by applying an interpolation formula. Tables III.D19, III.D20, III.D21 and III.D22 summarize quarterly current-, non-current, and total benefits for the various disability categories.

1 A 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.

2 This 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.

3 This factor is used to equate historical non-current-payment benefits to the product of the first 4 components-it has been something other than 1.0 because retroactive payments in the short-range model account for more than just "pure retroactivity". Non-current payments may also include recovery of disability overpayments or other unpredictable quantities. Nevertheless, this factor is assumed to be 1.0 throughout the projection period.

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December 26, 2001