Public Disability Insurance and Private Health Insurance

Summary of working paper 9148
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In spite of the waiting period before those on DI receive Medicare coverage, there is no reduction in insurance coverage among DI applicants.

Disability Insurance (DI), one of America's largest social insurance programs, pays out cash benefits and provides health insurance for 4.7 million beneficiaries. However, health coverage under DI, provided through the Medicare program, is only available after a two-year waiting period. Are many individuals left with no health insurance coverage during that waiting period? And, does the waiting period deter applications for DI by people who would lose their health insurance if they left their job and who do not have an alternative source of insurance?

In Health Insurance Coverage and the Disability Insurance Application Decision (NBER Working Paper No. 9148), authors Jonathan Gruber and Jeffrey Kubik examine these questions using data from the Health and Retirement Survey, which follows a sample of people born in 1931-41 for up to 10 years. The survey asks about their sources of health insurance coverage, DI applications and their receipt of DI benefits, and includes demographic and job characteristics. The survey asks for detail about health insurance provided by the individual's current employers, the availability of retiree health insurance coverage, and spousal health insurance coverage.

Gruber and Kubik show that, in spite of the waiting period before those on DI receive Medicare coverage, there is no reduction in insurance coverage among DI applicants. In fact, coverage rises, because individuals experience only a modest reduction in employer coverage, about 9 percent. This is more than offset by increased coverage from: spousal insurance (9 percent), Medicaid coverage and other public coverage (4 percent), and retiree coverage and other private coverage (5 percent). Hence, the researchers show that the waiting period does not lead to lower insurance levels among DI beneficiaries.

However, it turns out that individuals who would lose health insurance while waiting for Medicare coverage under DI are deterred from applying to the program. The authors find that individuals with an alternative source of coverage if they lose their jobs are 26-74 percent more likely to apply to the DI program than those who do not have an alternative source of health insurance.

These findings suggest that reducing the waiting period or otherwise enhancing the insurance coverage of DI applicants would not do much to increase insurance coverage. Rather, it would serve chiefly to replace private sources of coverage with public coverage. However, enhancing insurance during the waiting period would promote applications for DI, and the implications of increased applications are unclear. If the applications come from the least disabled individuals, this might not be a good use of public funds. However, if the individuals who are deterred from applying by the waiting period are the most disabled applicants, those who cannot bear the risk of going without coverage for any period of time, then there could be major societal gains from loosening what the researchers call the "application lock."

-- Andrew Balls