OLIVIA S. MITCHELL, University of Pennsylvania - Insurance & Risk Management Department, National Bureau of Economic Research (NBER)
Email: mitchelo@wharton.upenn.edu
JOHN W.R. PHILLIPS, National Institutes on Aging - Health Scientist Administrator
Email: PhillipJ@nia.nih.gov

This project explores the process by which older workers apply for, and are awarded, Social Security Disability Insurance (DI) benefits. Our focus is on how and whether DI serves as a path out of the labor market at older ages. This research is important to the extent that proposals to raise the early retirement age under Social Security alter the opportunity set available to older workers. Identifying the characteristics of older workers who apply for DI under current rules, those who are rejected after application, and those who then go on to appeal, can provide policymakers with insight regarding the potential well-being of the "at risk" population if the early retirement age were to rise. We use data from the Health and Retirement Study to compare older workers prior to application, and use these characteristics to predict future DI application and award patterns. The findings indicate that older people initially in poor health and with low economic status are more likely to apply for DI thereafter, as compared to those reporting no health problems and with more assets. Nevertheless few factors distinguish statistically between applicants awarded versus denied benefits, and between those who appeal rejected applications versus those who do not.

RICHARD V. BURKHAUSER, Cornell University - Department of Policy Analysis & Management (PAM), Syracuse University - Center for Policy Research
Email: rvb1@cornell.edu
JOHN CAWLEY, Cornell University - Department of Policy Analysis & Management (PAM), National Bureau of Economic Research (NBER)
Email: jhc38@cornell.edu

Between the early 1980s and 2002, both the prevalence of obesity and the number of beneficiaries of the Social Security Disability Insurance program doubled. We test whether these trends are related; specifically, we test whether obesity causes disability and movement onto the disability rolls.

We estimate models of instrumental variables using two nationally representative data sets: the Panel Survey of Income Dynamics and the National Longitudinal Survey of Youth, 1979 Cohort. The results are mixed but we find evidence that weight increases the probability of health-related work limitations and the probability of receiving disability-related income. Our results suggest that the failure to treat obesity as endogenous leads to dramatic underestimates of the link between obesity and disability outcomes.

ESTELLE JAMES, Consultant
Email: ejames@estellejames.com
ALEJANDRA COX EDWARDS, California State University, Long Beach - Department of Economics
Email: edwards.ac@comcast.net
AUGUSTO IGLESIAS, Primerica
Email: aiglesias@primamerica.cl

Social security systems in many countries face problems of high and escalating disability costs. This paper analyzes how disability costs have been controlled in Chile. The disability insurance system in Chile is much less well-known than the pension part, but it is equally innovative. It differs from traditional public disability insurance in two important ways: 1) it is largely pre-funded, sufficient to cover a lifetime disability annuity and 2) the disability assessment procedure includes participation by private pension funds (AFPs) and insurance companies, who finance the benefit and have a direct pecuniary interest in controlling costs. We hypothesize that these procedures and incentives will keep system costs low, by cutting the incidence of successful disability claims. Using the Cox proportional hazard model based on a retrospective sample of new and old system affiliates (ESP 2002), we conclude that observed behavior is broadly consistent with this hypothesis. Disability hazard rates are only 20-35% as high in the new system as in the old, after controlling for other co-variates. Furthermore, analysis of mortality rates among disabled pensioners (using probit and proportional hazard models) suggests that the new system has accurately targeted those with more severe medical problems.

KAJAL LAHIRI, SUNY at Albany, College of Arts and Sciences, Economics
Email: klahiri@albany.edu
JAE SONG, U.S. Social Security Administration
Email: jae.song@ssa.gov
BERNARD WIXON, U.S. Social Security Administration
Email: Bernard.Wixon@ssa.gov

We study Disability Insurance (DI) application behavior in the U.S. using a matched SIPP and administrative data over 1989-1995. Certain state-contingent earnings projections and eligibility probabilities are central to the analysis. We find evidence for a small work disincentive effect of DI that seems to be restricted to a subset of the DI beneficiaries, including low earning groups such as blue collar workers and those subject to economic dislocation. Processing time, Medicare value, unemployment, private health insurance, and health shocks are some of the major factors that affect application propensity. The behavioral response of female workers to various parameters of the DI program is found to be quite different from that of males.

PERRY SINGLETON, Syracuse University - Department of Economics
Email: psinglet@syr.edu

I examine whether individuals respond to monetary incentives to detect latent medical conditions. The effect is identified by an amendment to Title 38 that deemed diabetes associated with Agent Orange exposure a compensable disability under the VA's Disability Compensation program. Since a diagnosis is a requisite for benefit eligibility, and nearly one-third of diabetics remain undiagnosed, the advent of disability insurance may have encouraged the detection of diabetes among the previously undiagnosed population. Evidence from the National Health Interview Survey suggests that the policy increased the prevalence of diabetes by 2.7 percentage points among veterans.