All or Nothing: Health and the U.S. Social Security Disability Insurance Program (Job Market Paper)

Abstract

Social Security Disability Insurance (SSDI) policy evaluates applicants’ health as a binary outcome and creates incentives to exaggerate or even exacerbate one’s health problems to acquire eligibility. This paper is the first to develop and estimate an individual decision-making model that permits the evaluation of the health effects of the changes to SSDI design. Specifically, I focus on the modification that allows partial benefits for the partially disabled. Simulations show this reform can decrease the mortality rate. This decrease varies with age and reaches a maximum of 0.1 p.p for 60-year-olds. Back-of-the-envelope calculations show that thanks to the reform, approximately 30,000 Americans will extend their lives by 5 years, about 20,000 Americans — by 15 years, and around 10,000 Americans — by 20 years. This increase in life longevity will come with an increase in the total sum of the benefits and with an increase in labor supply and income taxes. After accounting for increased taxes, the investment required to prolong the life of one person by one year is around $17,000.