The Long-Term Financial and Health
Outcomes of Disability Insurance
Applicants
Kathleen McGarry
and
Jonathan Skinner
Presentation prepared for
“Issues for Retirement Security”
August 10-11, 2009
Overall Agenda: The Importance of
Health Shocks and Health Expenses on
Retirement Well-Being
• “Out-of-Pocket Medical Expenditures and Retirement
Security in the United States”
▫ Presented at the NBER Aging Conference, May 2009
• “The Long-Term Financial and Health Outcomes of
Disability Insurance Applicants”
▫ RRC Annual Meeting, August 2009
Out-of-Pocket Spending Horror Stories
• “…22 million adults with health coverage all year
still spent a large chuck of their incomes—at
least 10%..—for out-of-pocket medical
expenses.” –NYTimes
• One-half of bankruptcies are associated with
“catastrophic” health care costs—Himmelstein
Out-of-Pocket Spending—Not so bad?
• Approximately 70 percent of elderly have
insurance in addition to Medicare
• Medicare has recently expanded coverage to
include prescription drugs
• Empirical evidence shows far from devastating
risk.
▫ Palumbo found less than 1% of the elderly spent
more than $13,600 per year.
▫ Hurd average expenditures of $3000-$4000
Reconciling the Difference
• Risk may lie in upper tail of the distribution
• Difficult to measure / defining costs
▫ Don’t measure what people can’t afford
▫ Difficult to separate needed care from luxuries
▫ Measurement of non-medical spending
 Ramps, special food, helpers
• End of life spending difficult to measure
▫
▫
▫
▫
Small sample size
Proxy reports
Elapsed time  recall problems
Time affects comparisons with survivors
Reconciling the Difference
• Surveys miss institutionalized population may
miss LTC
• Cross section may miss effects of chronic disease
• Miss implicit cost of informal care
• Focus on areas where burden might be especially
bad
▫ Those near death
▫ Disabled
▫ Cumulative spending
Distribution of Spending by Mortality
40,000
35,000
30,000
25,000
20,000
mean
50th
75th
95th
15,000
10,000
5,000
0
Decedents avg
1.2 yrs
Survivors avg
~2 yrs
Distribution of spending by type
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Mean
Median
75th
95th
Hosp/NH
Helper
Insurance
Cumulative spending by mortality
status (median)
25000
20000
15000
Last obs
Last + Lag
Last+2 Lags
10000
5000
0
Decedents
Survivors
Summary of Out-of-Pocket Spending
• Particularly high at the end of life
▫ Also where it is most difficult to measure
▫ Serious effects on surviving spouse, heirs
• Much spending in the upper tail associated with long
term care needs
• Cumulative effects are important
▫ Positive correlation over time
• Suggests that in addition to those at the end of life, the
disabled could be at risk
▫ May need help with ADL limitations
▫ Custodial care
▫ Care over an extended period of time
Well-Being of Disabled Population
• Decline in income due to lost earnings
▫ Does income rebound over time?
 SSDI/SSI, income from other family members, recovery
▫ Does health shock  permanent negative shock to income?
• Other financial implications:
▫ Foregone pension wealth and retiree health insurance
▫ Consistently lower income implies:
 Spend down of assets
 No accumulation of wealth for retirement
 Outcomes in retirement could be particularly bad
• What role do OOPME play?
▫ Higher spending vs. Medicare / Medicaid coverage
Sample
• Use 1992-2006 HRS to construct three groups
▫ Never applied for SSDI/SSI
▫ Applied and were rejected
▫ Applied and received benefits
 At first observation and ever
• Examine differences in:
▫
▫
▫
▫
Income
Assets
Health (self reported, mortality, depression)
Out of pocket medical spending
• Particular attention to outcomes after 65+
Figure 1: Median Household Income by SSDI/SSI Status
& Age
$70,000
$60,000
$50,000
$40,000
Rejected
Accepted
Never App.
$30,000
$20,000
$10,000
$0
55-59
60-64
65-69
70-74
Figure 2: Median Household Assets by SSDI/SSI Status &
Age
$250,000
$200,000
$150,000
Rejected
Accepted
Never App.
$100,000
$50,000
$0
55-59
60-64
65-69
70-74
Figure 3: Percent Currently Depressed by SSDI/SSI
Status and Age Group
0.5
0.4
0.3
Rejected
Accepted
Never App.
0.2
0.1
0
55-59
60-64
65-69
70-74
0.00
0.25
0.50
0.75
1.00
Kaplan-Meier survival estimates, by Status
40
60
80
100
Age
Did Not Apply
Rejected
Received
.6
.4
.2
0
Survival
.8
1
Cox proportional hazards regression
50
60
70
80
analysis time
receive=0 reject=0
receive=1
90
reject=1
100
Regression Analyses
• Model Income / assets as a function of Disability status
• Control for:
▫ Age, race / ethnicity, schooling level, marital status, blue
collar occupation
▫ With and w/o self reported health, depression
• Focus on indicators for SSDI / SSI status
▫ Indicator for whether they have applied for benefits
▫ Indicator for whether they have received benefits
• Same results as in simple cross tabulations:
▫ Application indicator is significant and negative
▫ Benefit indicator is insignificant and small
Summary:
• Those who applied
▫
▫
▫
▫
Lower incomes
Lower asset levels
Greater mortality
Higher depression scores
• Economically (and statistically) insignificant
difference between accepted and rejected
applicants in most specifications
▫ In cases with a significant difference, difference is
small (e.g. $10,000 in wealth)
What about OOPME?
• SSDI recipients have Medicare coverage
• SSI recipients have Medicaid coverage
 Even if they are less healthy, may not have
significantly higher spending
Figure 4A: Median OOPME SSDI/SSI Status & Age
$1,600
$1,400
$1,200
$1,000
Rejected
Accepted
Never App.
$800
$600
$400
$200
$0
55-59
60-64
65-69
70-74
Figure 4B: Mean OOPME SSDI/SSI Status & Age
$6,000
$5,000
$4,000
Rejected
Accepted
Never App.
$3,000
$2,000
$1,000
$0
55-59
60-64
65-69
70-74
In regression context:
• Disability application is associated with higher
out-of-pocket medical spending
• Offset by receipt of benefits.
▫ Likely due to associated health insurance coverage
▫ Medicaid indicator significant (negative) in
regressions  lowers out of pocket costs
• How important are costs long term?
Cumulative Spending Disabled--Median
15000
10000
Last obs
Last + Lag
Last+2 Lags
5000
0
Received
Rejected
Cumulative Spending disabled--mean
20000
15000
Last obs
Last + Lag
Last+2 Lags
10000
5000
0
Received
Rejected
Cumulative Spending Disabled Couples--Median
30000
20000
Last obs
Last + Lag
Last+2 Lags
10000
0
Received
Rejected
Cumulative Spending Couples--Mean
40000
30000
Last obs
Last + Lag
Last+2 Lags
20000
10000
0
Received
Rejected
Summary
• Disabled (rejected & accepted) are significantly
worse off than non-disabled in numerous
dimensions
▫ Income, wealth, and health
▫ Not significantly different from each other
• Increased health care costs for applicants, offset
for those receiving disability benefits
• OOP burden accumulates quickly over years
What might we infer about eligibility
process?
• Doesn’t work:
▫ Those denied benefits appear to be in just as poor health as
recipients
• Does work:
▫ Those denied benefits manage to do as well as those receive
assistance
▫ Work, family / spouse helps smooth consumption
• Does work:
▫ May be able to screen correctly but rejected applicants are
scarred by time out of the labor force
 Deterioration of human capital
 Sends poor signal to employers
Conclusions
• Little difference in out of pocket medical
spending by disabled status
• But sizable expenditures when aggregated over
time, particularly relative to income and wealth
Figure 1J: Median Household Income by SSDI/SSI Status
& Age
$70,000
$60,000
$50,000
$40,000
Rejected
Accepted
Never App.
$30,000
$20,000
$10,000
$0
55-59
60-64
65-69
70-74
Figure 2J: Median Household Assets by SSDI/SSI Status
& Age
$250,000
$200,000
$150,000
Rejected
Accepted
Never App.
$100,000
$50,000
$0
55-59
60-64
65-69
70-74
Figure 3J: Percent Currently Depressed by SSDI/SSI
Status and Age Group
0.6
0.5
0.4
Rejected
Accepted
Never App.
0.3
0.2
0.1
0
55-59
60-64
65-69
70-74
Avg OOP spending disabled decedents
20000
15000
Last obs
Last + Lag
Last+2 Lags
10000
5000
0
Received
Rejected
Avg OOPME disabled decedent--couples
40000
30000
Last obs
Last + Lag
Last+2 Lags
20000
10000
0
Received
Rejected