Association for Public Policy Analysis & Management

Are early Social Security claimers too sick to work?  Although a large literature has examined the work disincentive effects of the Disability Insurance program, the question of whether these effects are economically significant remains unsettled. One way to measure these disincentive effects is to analyze whether DI recipients are really in worse health than rejected applicants, as we do here. Second, one policy option for extending the solvency of the Old Age and Survivors Insurance (OASI) program is increasing the age at which individuals may first claim benefits, known as the Early Entitlement Age (EEA; currently age 62) (CBO 2012). In order to accurately estimate the overall budgetary impact of such a policy, it is necessary to know how many individuals would take up Disability Insurance (DI) if the EEA were increased.

In order to shed light on both of these issues, we use new data to consider differences in health across DI recipients, applicants and early OASI claimers.  We use administrative Medicare claims linked to nationally representative Health and Retirement Study data to compare health care utilization at common ages among four groups of Social Security recipients.  Specifically, we compare Social Security Disability Insurance (SSDI) recipients to rejected SSDI applicants, retirees who claimed Social Security benefits prior to Full Retirement Age (FRA), and FRA claimants.  We use total Medicare spending at age 65 and age 70 as a measure of health status, with the assumption that higher utilization implies a greater need for health care driven by worse health.  Beneficiaries with significant health care needs are less likely to be able to continue working than those who are healthier. 

We find that SSDI recipients use more health care on average than those who never received DI. At age 65, Medicare spending on SSDI recipients was $4,440 less than spending on retirees who claimed Social Security benefits prior to Full Retirement Age (FRA) and $4,727 less than those claiming at FRA.  Differences in Medicare spending persist at all points of the spending distribution and similarly large in comparisons at age 70.  These differences are robust to a variety of methodological approaches including general linear models, quantile regression, and reweighting, and in specifications limiting comparisons to beneficiaries claiming benefits at initial EEA.  Our results suggest that poor health may contribute to EEA claiming decisions, though this group is considerably healthier than those who were too disabled to work and qualified for DI benefits.