Working Paper: NBER ID: w28852
Authors: Manasi Deshpande; Lee Lockwood
Abstract: The public debate over disability insurance has centered on concerns about individuals without severe health conditions receiving benefits. We go beyond health risk alone to quantify the overall insurance value of U.S. disability programs, including value from insuring non-health risk. We find that disability recipients, especially those with less-severe health conditions, are much more likely to have experienced a wide variety of non-health shocks than non-recipients. Selection into disability receipt on the basis of non-health shocks is so strong among individuals with less-severe health conditions that by many measures less-severe recipients are worse off than more-severe recipients. As a result, under baseline assumptions, benefits to less-severe recipients have an annual surplus value (insurance benefit less efficiency cost) over cost-equivalent tax cuts of $7,700 per recipient, about three-fourths that of benefits to more-severe recipients ($9,900). Insurance against non-health risk accounts for about one-half of the value of U.S. disability programs.
Keywords: Disability Insurance; Nonhealth Risks; Welfare Implications
JEL Codes: H53; I38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nonhealth shocks (I19) | disability receipt (H55) |
| less-severe disability recipients (J14) | nonhealth shocks (I19) |
| disability programs (H53) | insurance against nonhealth risks (G52) |
| nonhealth factors (I19) | selection into disability receipt (J14) |
| mismatches in health eligibility (I18) | value of disability benefits (J17) |
| disability programs (H53) | total value > hypothetical targeting severity (D46) |
| nonhealth risks (I12) | value derived from disability insurance (J17) |