Social Security Disability Insurance (DI) beneficiaries are the only individuals who qualify for Medicare, the universal health care program for retirees, before age 65. However, Medicare eligibility is not coincidental with DI award. Individuals must wait two years after DI entitlement before they can apply for Medicare. The health insurance of individuals before and after this waiting period is the subject of this paper.

There are two primary reasons for a two-year waiting period between DI benefits and Medicare eligibility, both of which offer a motivation for this analysis. The first is cost saving to Medicare. A two-year delay in eligibility helps Medicare avoid expensive end-of-life care for the terminally ill. However, if individuals who are disabled and not working are constrained in their choices in securing health care coverage, the waiting period could affect health outcomes, as individuals could be prompted to delay care, and individual finances, if they incur higher out-of-pocket costs. Moreover, while Medicare as a program saves money, the wait in eligibility for DI recipients could shift costs to other programs, such as Medicaid, or other entities, such as community health centers, which vary in efficiency and effectiveness in delivering care.

The second reason for a waiting period is to incentivize return to work. DI is intended as a wage replacement for individuals who can no longer work, but the steady benefit can also create a disincentive for individuals to return to the labor market, even if they become well enough to do so. A wait for Medicare can be seen as a way to prevent adding to this disincentive. The concern is that if individuals who start DI benefits simultaneously receive public health coverage, they will have even less motivation to return to employment, which is the primary means of securing private health coverage. The waiting period does not eliminate this effect, but delays it.

The first step in evaluating the waiting period—both the consequences of cost saving and the incentive to return to work—is to document the health insurance choices of individuals in the current environment. Using panel data from the 2008 Survey of Income and Program Participation (SIPP), I perform an event study with individual fixed effects to regress each of the first six years of DI tenure on eight different dependent variables measuring health insurance.

The transition of the DI population from wages to cash transfer is well studied, with analyses spanning the rise in the rolls, the decision to claim benefits, and the work incentive structures in place in the program. However, the concurrent transition of the DI population from private health insurance to public coverage has not been explored.  There is a wellspring of research looking at other populations who become eligible for public coverage, and the crowd out of private coverage that occurs. By analyzing the health insurance of DI recipients before and after the Medicare waiting period, this paper aims to bridge these two strands of the literature.