Retirement

Does Temporary Disability Insurance Reduce Dependence on Social Security? – Center for Retirement Research

gave short The key findings are:

  • Policymakers are increasingly interested in expanding access to paid leave, including temporary disability insurance (TDI).
  • Advocates argue that TDI can reduce reliance on Social Security Disability Insurance (DI) by helping workers cope with health shocks and return to work.
  • Our results show that access to TDI greatly reduces DI applications, receives fewer DI awards, and increases employment for workers with severe disabilities.
  • For those with less severe conditions, though, TDI leads to earlier retirement.

Introduction

Temporary Disability Insurance (TDI) provides income to workers while they recover from a serious medical condition. Some argue that these benefits allow workers to adjust to health shocks and return to the workforce, reducing reliance on Social Security Disability Insurance (DI). Nevertheless, TDI may encourage workers to apply for DI benefits by providing a source of income during a longer eligibility period, which would increase the program’s administrative burden and financial costs. Either way, spillover from the national paid leave policy could be counterproductive for the DI program.

This short, Based on a recent paper, addresses two questions: 1) How does access to TDI benefits affect the likelihood that older workers with severe disabilities apply for DI and eventually receive benefits? and 2) how does TDI affect the employment of workers whose impairments are clearly not severe enough to qualify for DI?

The discussion goes like this. The first section provides a background to the discussion of the current landscape of TDI benefits and the potential spillover to DI. The second section describes the data and methodology for analysis. The third section presents the results. The final section concludes that expanding access to TDI would substantially reduce applications to the DI program, slightly reduce receipt of benefits, and retain workers with severe disabilities in the labor force. At the same time, TDI can create work disincentives for less vulnerable individuals.

background

The national TDI landscape is a patchwork of state initiatives and employer-provided benefits. At the federal level, the Family and Medical Leave Act (FMLA) of 1993 provides unpaid leave for serious medical conditions, but it does not replace lost earnings and, in practice, covers less than 60 percent of the workforce. is surrounded. Can access workers. paid Leave only if they live in states with a TDI mandate or if their employer voluntarily offers these benefits. Fifteen states – including many with the largest populations – have created paid family and medical leave programs that include TDI as a component (see Table 1). State TDI programs typically provide workers with about 60 percent of pre-disability earnings for six months, although the duration of benefits varies considerably among states. Employer provision of TDI outside of states with mandated benefits is relatively small.

Support for the creation of a federal paid leave program has also gained attention, sparking debate about possible additions to Social Security’s DI program. Proponents of national paid leave argue that TDI will allow workers – especially older workers who are most at risk – to adjust to a health shock and resume employment. This will reduce the dependence on DI. However, others cautioned that TDI could instead serve as an on-ramp to DI: Because TDI benefits are not considered earnings, they can provide needed income during the application process, allowing workers to apply. Can encourage giving, and ultimately increase DI roles.

Complicating matters further, DI is designed for individuals with persistent and severe conditions that prevent them from participating in the labor market. Many workers with less severe disabilities qualify for TDI but are unlikely to receive DI benefits. These individuals will likely continue to work in some capacity until TDI allows them to take time off from the labor force. Policymakers considering a national program need to know how TDI affects all workers who use benefits, not just those who qualify for DI.

Despite the growing interest in TDI programs – and the obvious potential for expansion into DI – research is quite limited. Therefore, the purpose of this analysis is to examine how TDI affects the judgments of workers with different levels of impairment.

Data and methodology

The data for our analysis comes from 1992-2020. A study of health and retirement (HRS), which collects information on workers’ health, employment, and DI status. Our sample consists of full-time workers aged 50–60 who experience a new work-limiting shock. The analysis tracks these workers for two to four years after the onset of disability, giving them plenty of time to submit a DI application. We consider workers their access to TDI benefits. Because of limited data on employer coverage, we compare workers living in states with TDI mandates—California, New Jersey, New York, and Rhode Island—to similar workers in other states.

Outcomes of interest are application for DI benefits, receipt of benefits, and employment status. To measure the impact of TDI access, the analysis compares worker interest outcomes with and without state-mandated TDI. Classifying workers by the persistence and severity of their disability allows us to identify potential DI applicants, who make up 30 percent of our sample, as well as workers with less severe disabilities who have DI. Not likely to qualify for

Results

This section begins by examining how access to TDI affects DI applications and benefit receipt, as well as employment, for the potential DI applicant group. It then turns to the effects of TDI for those with less severe impairment.

Implications of TDI for Potential DI Applicants

By four years after disability onset, 39 percent of potential applicants for DI had submitted a claim for DI in non-mandate states, compared with only 27 percent in mandate states (see Figure 1). This reduction in applications, however, produces only a small reduction in actual benefit receipt – suggesting that many of those who are no longer applying will not be eligible. We also see strong effects on employment – ​​by four years later, only 39 percent of potential DI applicants are employed in non-mandate states, compared to 61 percent in TDI mandate states. Findings confirm that reduced claims not only reduce the administrative burden for the Social Security Administration, but also allow applicants to continue working.

Bar graph showing the proportion of workers aged 50–60 with severe impairment by DI and employment outcomes four years after onset, 1992–2020

Potential DI applicants with access to TDI may overwork for a few reasons: 1) They may use their time on TDI to find a new job that matches their current skills; or 2) TDI may allow them to rest, recover, and return to their previous (or similar) job. Evidence suggests that access to TDI increases the share of people receiving employer accommodation by 11 percentage points, but has virtually no effect on self-reported health in the short term (see Figure 2). Accommodation improvements could come either from potential DI applicants using their time on TDI to find a job with such support or employers making existing workers more accommodating. The sample is too small to distinguish between these two mechanisms.

Bar graph showing share of workers aged 50–60 with employer accommodation and improved health after starting, 1992–2020

Effect of TDI for workers with less severe impairments

As expected, access to TDI has no effect on the share of workers with less severe impairment who apply for or receive DI (see Figure 3). However, TDI appears to reduce employment. While the employment rate in non-mandate states was 65 percent—up to four years after disability onset—it was only 50 percent in states with a TDI mandate.

Bar graph showing the proportion of workers aged 50–60 with less severe impairments by DI and employment outcomes four years after onset, 1992–2020

Result

Policymakers at the state and federal levels are focusing on expanding access to paid leave. Advocates argue that providing medical leave to older workers (TDI) can reduce their dependence on the federal DI program and keep them in the labor force. This short found that access to TDI did both: reduce DI application rates and increase employment up to four years after a health shock for workers with severe disabilities. These responses also result in a slight reduction in disability listings. On the other hand, for those with less severe conditions, who are unlikely to qualify for DI, TDI leads to early retirement.

references

Authors, David and Mark Duggan. 2010. “Support Work: A Proposal to Modernize the American Disability Insurance System.” Washington, DC: Center for American Development and the Hamilton Project.

Authors, David, Mark Duggan, Jonathan Gruber, and Catherine McLean. 2013. “How Does Access to Short-Term Disability Insurance Affect SSDI Claiming?” Working Paper DRC NB13-09. Cambridge, MA: National Bureau of Economic Research.

Authors, David, Mark Duggan, and Jonathan Gruber. 2014. “Moral Hazard and Claims Prevention in Private Disability Insurance.” American Economic Journal: Applied Economics 6(4): 110-141.

Autor, David H., Nicole Mestas, Kathleen J. Mullen, and Alexander Strand. 2015. “Does Delay Cause Decline? The Effect of Administrative Decision Timing on Labor Force Participation and Earnings of Disability Applicants.” Working paper w20840. Cambridge, MA: National Bureau of Economic Research.

Bilateral Policy Center. 2024. “State Paid Family Leave Laws in the United States”. Explainer. Washington DC.

Boyens, Chantel, Jack Smalligan, and Vicki Shabo. 2022. “The Evolution of Federal Paid Family and Medical Leave Policy.” Problem brief. Washington, DC: Urban Institute.

Burkhauser, Richard V. and Mary Daly. 2011. “Work and Well-being of People with Disabilities: What Went Wrong and Strategies for Change.” Washington, DC: American Enterprise Institute.

Liu, Sian, Laura D. Quinby, and James Giles. 2023. “Does Temporary Disability Insurance Reduce Older Workers’ Dependence on Social Security Disability Insurance?” Working Paper 2023-13. Chestnut Hill, MA: Center for Retirement Research at Boston College.

Maestas, Nicole, Kathleen Mullen, and Alexander Strand. 2013. Does Disability Insurance Receipt Work as a Discouragement? Using the Examiner Assignment to Estimate the Causal Effects of SSDI Receipt. American Economic Review 103(5): 1797-1829.

Maestas, Nicole. 2019 “Identifying Work Capacity and Promoting Work: Strategies for Modernizing the SSDI Program.” Annals of the American Academy of Political and Social Science 686(1): 93-120.

Meisel, Matt and Alexander Strand. 2019 “The Time Between Onset of Disability and Application for Benefits: How Changes Among Disabled Workers Can Inform Early Intervention Policies.” Social Security Bulletin 79(3): 47-61.

National Partnership for Women and Families. 2022. “State Paid Family and Medical Leave Insurance Laws.” Washington DC.

Rawson Slater, Maya and Jenna Stearns. 2020 “Economic Mandatory Initiative to Enact Paid Family Leave Across the United States.” Washington, DC: Washington Center for Equitable Growth.

Quinby, Laura D. and Robert L. Silesiano. 2021. “Implications of Allowing US Employers to Opt Out of Payroll-Tax-Funded Leave Program.” Special report. Chestnut Hill, MA: Center for Retirement Research at Boston College.

Smith, James P. 2005. “Outcomes and predictors of new health events.” I Analysis in the Economics of Aging, Edited by DA Wise, 213-240. Chicago, IL: University of Chicago Press.

University of Michigan. A study of health and retirement, 1992-2020. Ann Arbor, MI

US Bureau of Labor Statistics. 2022. National Compensation Survey: Employee Benefits in the United States, March 2022. Washington, DC.i


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