CHAMPAIGN, Ill. — It’s a well-established pattern that poor economic conditions lead to increased admissions into Social Security Disability Insurance, the federal safety net program for individuals who suffer permanent work-limiting disabilities. But according to a new paper co-written by a team of University of Illinois Urbana-Champaign scholars, individuals who entered the disability program when unemployment was high were in better health, as measured by lower health care spending and mortality, than individuals who entered when unemployment was low.
Recessions neither worsen nor improve the long-term health prospects of individuals with work-limiting disabilities, said David Molitor, a professor of finance at the Gies College of Business and the RC Evans Data Analytics Fellow. Instead, the better health among those who enter the disability program during recessions reflects a change in the types of individuals who enter when economic conditions are poor.
“The literature on the relationship between recessions and health suggests that a weakening economy could translate into worse health overall due to decreased income and decreased access to health care – this could, in turn, drive an uptake in disability claims,” he said. “But what we found was inconsistent with that hypothesis.”
The findings suggest that disability insurance may be helping individuals smooth over temporary, medium-run shocks to their employment conditions – a role that is at cross-purposes with the program’s aim of protecting individuals from career-ending shocks to their ability to work, according to the paper.
Nolan Miller, the 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 entrants between 1991-2015, the researchers found new evidence on the health of recipients who enter at different ages and at different moments in the business cycle.
“There were multiple business cycles over that period” – from recessions to periods of economic growth – “so we can distinguish between cyclical fluctuations and long-term trends,” Molitor said.
For each percentage point increase in unemployment at the time of application into the disability program, there was a corresponding 4.2% increase in disability awards but also a 0.4% decrease in Medicare spending among new entrants, the researchers found.
“Just characterizing the health of these entrants based on their medical spending and their mortality, and in these periods when more people are enrolling due to economic recession – these groups look healthier in that they have lower medical spending and lower mortality rates,” Molitor said.
The researchers also found that disability insurance entry increases sharply at ages 50 and 55, when the eligibility criteria relax.
“This finding is consistent with the hypothesis that there are individuals around the age cutoffs whose health satisfies the relaxed entry requirements and are induced into the disability insurance program by the lower barriers to entry,” Miller said. “We also find that the average medical spending and mortality for disability insurance recipients who enter just above these age thresholds are about 3% lower than for those entering at slightly younger ages, reflecting a change in the composition of new entrants.”
“For workers between the ages of 20 and 49, entry into disability insurance is only moderately responsive to recessions,” Molitor said. “But starting at age 50, when the eligibility criteria for the disability insurance program relax, that category of worker becomes much more responsive to recessions. Above age 55, when eligibility criteria further relax, workers become even more responsive to an economic slowdown.”
Workers with limited education and work experience who would likely have a difficult time transitioning to a new job given their physical limitations are very sensitive to recessions and potential unemployment, Molitor said.
“It’s possible that employers have made accommodations for these employees who would qualify for the disability program if they applied,” he said. “But when the economy sours and employers have to tighten their belts, the accommodation goes away, which forces the employee out of a job and onto disability.”
The research suggests that offering other safety-net programs like short-term disability insurance may better target the types of medium-term shocks that induce enrollment of marginally disabled workers into the disability program during recessions, Molitor said.
“The disability insurance program is primarily designed to insure against permanent disability, not downturns in the business cycle or other temporary health setbacks,” he said. “Very few people who enter the program leave for reasons other than transitioning into retirement or death, and very few leave to go back into the labor force because they’ve recovered.”
The research was supported by the National Institute on Aging, a division of the National Institutes of Health.
The paper is available through the National Bureau of Economic Research. Carey is an NBER faculty research fellow; Miller and Molitor are NBER research associates.