Do Self‐insurance and Disability Insurance Prevent Consumption Loss on Disability?

Abstract

We show the extent to which public insurance and self-insurance mitigate the cost of health shocks that limit the ability to work. We use consumption data from the UK to estimate insurance provided by government disability programmes. Individuals with a work-limiting health condition, in receipt of disability insurance, have 9% lower consumption than those without such a condition. Self-insurance through savings and a work-active partner each improve outcomes by about 3%. Reduced generosity of disability insurance after 1995 is associated with increases in the consumption loss on disability, implying worse insurance, but with fewer false claimants, implying better targeting.

Designing Disability Insurance Reforms: Tightening Eligibility Rules or Reducing Benefits?

“…2 Meyer and Mok (2019) and Deshpande, Gross, and Su (2021) studied optimal DI benefits with a sufficient statistics approach. Ball and Low (2014) estimated the effect of DI on consumption in the UK to infer the insurance value of DI benefits. 3 The concept of the fiscal multiplier to measure overall program costs closely relates to the fiscal externalities estimated by Lee, Leung, O'Leary, Pei, and Quach (2021) and Hendren and Sprung-Keyser (2020).…”

“…22 Meyer and Mok (2019) and Deshpande, Gross, and Su (2021) studied optimal DI benefits with a sufficient statistics approach. Ball and Low (2014) estimated the effect of DI on consumption in the UK to infer the insurance value of DI benefits. …”

Temporary versus permanent disability: A dynamic incentives model

“…This debate centres on three main concerns: (i) the welfare benefits and financial impact of these programmes (e.g., Ball & Low, 2014;Braun et al, 2017;Low & Pistaferri, 2015;Meyer & Mok, 2013;Stephens, 2001) and the suitability of reforming these programmes (e.g., Bound et al, 2004Bound et al, , 2010; (ii) the inefficient distortion of these programmes on the labour supply (e.g., Blundell et al, 2016;Brinch, 2009;Deuchert & Eugster, 2019;Evans, 2002;French & Song, 2014;Goudswaard & Caminada, 2015;Hoynes & Moffitt, 1997;Koning and van Sonsbeek, 2017;Kostøl & Mogstad, 2014;Maestas et al, 2013;Meyer & Mok, 2016); and (iii) the impact of these programmes on private savings (e.g., Deaton, 1991).…”