Health Effects of Containing Moral Hazard: Evidence from Disability Insurance Reform

51 Pages Posted: 16 Aug 2014  

Pilar Garcia-Gomez

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Anne C. Gielen

Institute for the Study of Labor (IZA); Maastricht University

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Abstract

We exploit an age discontinuity in a Dutch disability insurance (DI) reform to identify the health impact of stricter eligibility criteria and reduced generosity. Women subject to the more stringent rule experience greater rates of hospitalization and mortality. A €1,000 reduction in annual benefits leads to a rise of 4.2 percentage points in the probability of being hospitalized and a 2.6 percentage point higher probability of death more than 10 years after the reform. There are no effects on the hospitalization of men subject to stricter rules but their mortality rate is reduced by 1.2 percentage points. The negative health effect on females is restricted to women with low pre-disability earnings. We hypothesize that the gender difference in the effect is due to the reform tightening eligibility particularly with respect to mental health conditions, which are more prevalent among female DI claimants. A simple back-of-the-envelope calculation shows that every dollar reduction in DI is almost completely offset by additional health care costs. This implies that policy makers considering a DI reform should carefully balance the welfare gains from reduced moral hazard against losses not only from less coverage of income risks but also from deteriorated health.

Keywords: disability insurance, moral hazard, health, mortality, regression discontinuity

JEL Classification: I14, H53, I38

Suggested Citation

Garcia-Gomez, Pilar and Gielen, Anne C., Health Effects of Containing Moral Hazard: Evidence from Disability Insurance Reform. IZA Discussion Paper No. 8386. Available at SSRN: https://ssrn.com/abstract=2481575

Pilar Garcia Gomez (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Anne C. Gielen

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands
+31 43 3883887 (Phone)
+31 43 3881450 (Fax)

HOME PAGE: http://www.annegielen.nl

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