CHAMPAIGN, Ill. – It is a well-established pattern that poor economic conditions lead to increased admissions to Social Security Disability Insurance, the federal safety net program for people with permanent work-limiting disabilities. But according to a new paper co-authored by a team of researchers at the University of Illinois at Urbana-Champaign, people who entered the disability program when unemployment was high had better health, as measured by lower health care costs and mortality, than people who entered when unemployment was low.
Recessions neither worsen nor improve the long-term health prospects of people with work-limiting disabilities, said David Molitor, professor of finance at the Gies College of Business and RC Evans Data Analytics Fellow. Instead, the better health among those entering the disability program during recessions reflects a change in the types of individuals entering when economic conditions are poor.
“The literature on the relationship between recessions and health suggests that a weaker economy could translate into deterioration in overall health due to lower incomes and reduced access to health care – this could, in turn, lead to an increase in disability claims,” he said. “But what we found was inconsistent with that hypothesis.”
The results suggest that disability insurance can help individuals mitigate temporary, medium-term shocks to their employment conditions – a role that runs counter to the program’s goal of protecting individuals against employment shocks. end of career on their ability to work, according to the paper.
Nolan Miller, Daniel and Cynthia Mah Helle Professor of Finance at Illinois, and Colleen Carey of Cornell University are co-authors of the research.
Using Medicare administrative data for disability insurance participants between 1991 and 2015, researchers found new evidence about the health of beneficiaries entering at different ages and at different points in the business cycle.
“There were several economic cycles during this period” – from recessions to periods of economic growth – “so we can distinguish between cyclical fluctuations and long-term trends,” Molitor said.
For every percentage point increase in unemployment at the time of applying for the disability program, there was a corresponding increase of 4.2% in disability benefits, but also a decrease of 0.4 % of Medicare spending among new entrants, the researchers found.
“You only need to characterize the health of these entrants based on their medical expenses and mortality, and in these times when more people are enrolling due to the economic downturn – these groups seem healthier to the extent that they have lower medical expenses and mortality rates,” Molitor said. .
The researchers also found that take-up of disability insurance increases sharply at ages 50 and 55, when eligibility criteria ease.
“This result is consistent with the hypothesis that there are people close to the age thresholds whose health satisfies the relaxed entry conditions and who are induced into the disability insurance program by the higher entry barriers. weak,” Miller said. “We also find that the average medical expenses and mortality of disability insurance beneficiaries who enter just above these age thresholds are about 3% lower than those who enter at a slightly younger age. , reflecting a change in the composition of new entrants.”
“For workers aged 20 to 49, entry into disability insurance responds only moderately to recessions,” Molitor said. “But from the age of 50, when the eligibility criteria for the disability insurance program become more flexible, this category of workers becomes much more susceptible to recessions. Beyond age 55, when eligibility criteria become more relaxed, workers become even more reactive to an economic downturn.
Workers with limited education and work experience who would likely struggle to transition to a new job given their physical limitations are highly susceptible to recessions and potential unemployment, Molitor said.
“It’s possible that employers have made accommodations for those employees who would qualify for the disability program if they apply for it,” he said. “But when the economy deteriorates and employers have to tighten their belts, the accommodation disappears, forcing the employee to quit their job and become disabled.”
Research suggests that the provision of other safety net programs such as short-term disability insurance may better target the types of medium-term shocks that induce mildly disabled workers to enroll in the disability program during recessions, Molitor said.
“The disability insurance program is primarily designed to insure against permanent disability, not against downturns in the business cycle or other temporary health conditions,” he said. “Very few people who enter the program leave for reasons other than transitioning to retirement or death, and very few leave to return to the workforce because they have recovered.”
The research was supported by the National Institute on Aging, a division of the National Institutes of Health.
The document is available from the National Bureau of Economic Research. Carey is a research fellow at NBER; Miller and Miller are NBER Research Associates.