Social Security Disability Applications near Retirement Ages

Na Yin, Baruch College, City University of New York (CUNY)

How much do more generous Social Security Disability Insurance (DI) benefits encourage applications? This relatively simple and straightforward question has proven difficult to answer empirically due to the challenges present in distinguishing between the effects of cash benefits and those of health insurance provided to DI beneficiaries through the Medicare program. As a result, existing estimates of cash benefit elasticities may be biased. In order to identify an effect of cash benefits on the application, variation in cash incentives independent of Medicare health insurance benefits is needed. We propose a new approach to estimating the benefit elasticity of disability applications that capitalizes on just such variation, while separating the cash incentives from the medical coverage incentives. This quasi-experimental approach allows us to more reliably estimate the effect of cash benefits on the decision to file for disability benefits.