Panel Paper: The Impact of the Affordable Care Act on Applications for Social Security Disability Benefits

Friday, November 3, 2017
Toronto (Hyatt Regency Chicago)

*Names in bold indicate Presenter

Padmaja Ayyagari, University of South Florida

The Social Security disability program provides cash benefits to individuals who are unable to work due to a disability. In addition, persons qualifying under the Supplemental Security Income (SSI) program gain Medicaid coverage while persons qualifying under the Social Security Disability Insurance (SSDI) program gain Medicare coverage after a wait-time of two years. Prior studies have shown that access to health insurance plays an important role in the decision to apply for disability benefits. I contribute to this literature by examining the impact of the Affordable Care Act (ACA) on disability applications. The ACA increased access to affordable health insurance via several provisions such as the expansion of the Medicaid program and the introduction of health insurance exchanges. This increased access to health insurance may affect disability applications via two potential pathways. First, the ACA changes may allow SSDI beneficiaries to have insurance coverage during the 2-year wait-time before Medicare covers them. While SSI beneficiaries do not face a similar waiting period for Medicaid coverage, individuals must still wait until their application is reviewed and benefits are awarded. Thus, the ACA may increase applications from persons who might have been discouraged from applying in the past because they were unwilling to incur gaps in coverage. On the other hand, by increasing access to other sources of coverage, the ACA may deter applications among individuals who value the Social Security disability program because of the health insurance coverage that it provides. A third potential pathway that may reduce disability applications is due to any improvements in health from the ACA related coverage increases. However, given that large improvements in health are unlikely to occur over the short term, this pathway is likely to be less important for this study. Overall, the net effect of the ACA is an empirical question.

To identify the impact of the ACA, I use a difference-in-differences approach that exploits pre-ACA state variation in insurance rates. Identification rests on the assumption that unobserved factors are not driving the correlation between pre-ACA insurance rates and changes in disability applications after the ACA. Event study models find no evidence of significant differential trends prior to the ACA, providing support to the identifying assumption. Using Social Security disability claims data from 2001 through 2015, I find that the ACA significantly reduced applications for Social Security disability benefits. Moreover, these effects were concentrated in states that had low pre-reform insurance rates and therefore stood to gain the most from health care reform. The results are robust to various specification checks. I also find no significant change in the overall award rate, i.e. the rate at which applicants receive disability benefits. However, this masks a significant decrease in states with low pre-reform insurance rates and an increase, albeit insignificant, in states with high pre-reform insurance rates. Overall, these results suggest that health insurance is an important factor in the application decision and the ACA reduced the relative value of Social Security disability benefits by increasing access to other sources of insurance.