Beyond Health: Non-Health Risk and the Value of Disability Insurance

43 Pages Posted: 31 May 2021 Last revised: 2 May 2022

See all articles by Manasi Deshpande

Manasi Deshpande

University of Chicago

Lee Lockwood

University of Virginia - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 2021

Abstract

The public debate over disability insurance has centered on concerns about individuals without severe health conditions receiving benefits. We go beyond health risk alone to quantify the overall insurance value of U.S. disability programs, including value from insuring non-health risk. We find that disability recipients, especially those with less-severe health conditions, are much more likely to have experienced a wide variety of non-health shocks than non-recipients. Selection into disability receipt on the basis of non-health shocks is so strong among individuals with less-severe health conditions that by many measures less-severe recipients are worse off than more-severe recipients. As a result, under baseline assumptions, benefits to less-severe recipients have an annual surplus value (insurance benefit less efficiency cost) over cost-equivalent tax cuts of $7,700 per recipient, about three-fourths that of benefits to more-severe recipients ($9,900). Insurance against non-health risk accounts for about one-half of the value of U.S. disability programs.

Suggested Citation

Deshpande, Manasi and Lockwood, Lee, Beyond Health: Non-Health Risk and the Value of Disability Insurance (May 2021). NBER Working Paper No. w28852, Available at SSRN: https://ssrn.com/abstract=3856832

Manasi Deshpande (Contact Author)

University of Chicago

1101 East 58th Street
Chicago, IL 60637
United States

Lee Lockwood

University of Virginia - Department of Economics ( email )

237 Monroe Hall
P.O. Box 400182
Charlottesville, VA 22904-418
United States

HOME PAGE: http://leemlockwood.com

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