Economics of Disability

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Economics of Disability

• Who are the disabled?
• Nature of public policy
• Incentives
• Evidence on labor market outcomes

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Nagi model of disability

• The dynamic nature of the disability process is
  represented by the movement through three stages
  pathology, impairment, and disability.
• The first stage, pathology, is the presence of a
  physical or mental condition that interrupts the
  physical or mental process of the human body. An
  example is deafness.
• This leads to the second stage, impairment,
  defined as a physiological, anatomical, or mental
  loss or abnormality that limits a persons
  capacity to function. For example, deafness
  limits the ability to interpret sound.
• The final stage, disability, is an inability to
  perform or a limitation in performing roles and
  tasks that are socially expected. For example, a
  person with deafness is unable to use the
  telephone.
• Under the Nagi model, those with a pathology that
  causes a physical or mental impairment that
  subsequently limits one or more life
  activitiessuch as workbut who nevertheless work
  would not be considered to have a work
  disability.

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Official definitions of disability

• the Americans with Disabilities Act of 1990
  (ADA), with the goal of establishing broad civil
  rights, defines disability as a physical or
  mental impairment that substantially limits one
  or more major life activity, a record of such an
  impairment, or being regarded as having such an
  impairment.
• The Social Security Administration, with the goal
  of awarding disability benefits, defines
  disability as the inability to engage in
  substantial gainful activity by reason of a
  medically determinable physical impairment
  expected to result in death or last at least 12
  months.
• In the economics literature, researchers
  definitions of disability frequently are
  functions of the available data. In most surveys
  of employment and household income, the data
  available on health come from a small set of
  questions that ask respondents to assess whether
  their health limits the kind of amount of work
  they can perform.
• In the CPS, the population with disabilities is
  defined by a work-limitations question that asks,
  Does anyone in this household have a health
  problem or disability which prevents them from
  working or which limits the kind or amount of
  work they can do? If yes, Who is that?

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Labor Force Status of Persons with Disabilities
2004
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Programs for those with Disabilities

• Social Security (SSDI)
• Supplementary Security Income (SSI)
• Veterans Administration Benefits
• Workers Compensation
• Medicare and Medicaid
• Sheltered Workshops
• Vocational Rehabilitation

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What are goals of public policy to Disabled?

• Provide a safety net (or more generous standard
  of living)
• Encourage continued labor force participation
• For families with a disabled child
• Substitute for lost labor
• Cover additional costs
• Provide services leading to child being a
  productive adult

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SSI

• Supplemental Security Income (SSI) is a
  nationwide federal assistance program for aged,
  blind, and disabled individuals with low incomes.
  SSI was enacted in 1972 and began paying benefits
  in 1974, replacing a patchwork of state-run
  entitlement programs created under the Social
  Security Act of 1935 and its Amendments in 1950.
• The establishment of SSI was the culmination of a
  four-year debate over a more overarching welfare
  reform proposalthe Family Assistance Plan
  (FAP)intended to extend the federal social
  safety net to all low income Americans.
• While Congress eventually rejected the
  universality of FAP, it passed SSI, a categorical
  welfare program based on the same negative income
  tax principles as FAP but targeted on a subset of
  low-income individuals not expected to workthe
  aged, blind, and disabled. The SSI program
  federalized benefit administration, set minimum
  benefit standards, imposed uniform eligibility
  criteria, and set low benefit reduction rates on
  labor earnings.
• To be eligible for SSI, individuals must fall
  below federally mandated income and asset limits.
  In 2002, the countable income limit was 780 per
  month (9,360 per year) for individuals and
  1,170 per month (14,040 per year) for couples.
  In general, the countable income limits fall
  just short of the U.S. Census Bureau official
  poverty thresholds. SSI applicants also must meet
  countable asset limits. In 2002, asset limits
  were set at 2,000 for individuals and 3,000 for
  couples (these are not indexed.) In-kind
  assistance from government programs like Food
  Stamps and public housing are not counted as
  income against the individuals overall SSI
  benefit. All other benefits from government
  programs are taxed at 100 percent.
• Federal Benefit Levels. The Federal SSI benefit
  is increased each January by the cost-of-living
  index used to adjust all Social Security (OASDI)
  benefits.. Excluding state supplementation, SSI
  payments represent about 75 percent of the
  poverty threshold for an eligible individual, and
  about 90 percent of the threshold for an eligible
  couple these percentages have remained
  relatively constant over time.
• SSI began as a relatively small program providing
  benefits to a largely elderly population. Since
  that time SSI has grown to become the largest
  federal means-tested cash assistance program in
  the U.S., with a caseload dominated by children
  and working-age adults with disabilities. In
  2001, an average of 6.7 million peoplethe vast
  majority under age 65received federal and state
  SSI benefits totaling over 32 billion.

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• In 2000, 45 states and the District of Columbia
  provided optional supplemental benefits. States
  offering supplements can follow the same rules as
  the federal SSI program and have the program
  administered by SSA, or they can administer their
  own program and use a state-specific eligibility
  criteria.
• Despite the apparent cost-advantage to federal
  administration, states have increasingly opted
  for state administration of supplemental
  payments. About three-quarters of states
  providing optional supplementation administer
  their own programs or jointly administer them
  with the federal government. Only 11 states rely
  solely on federal administration. In 2001, state
  supplemental payments amounted to about 11
  percent of annual SSI expenditures
• In addition to SSI federal and state cash
  payments, SSI beneficiaries frequently gain
  automatic eligibility to Medicaid and Food Stamp
  programs. Generally, SSI recipients are
  categorically eligible for Medicaid.
• As a federal income maintenance program, SSI is
  funded from general revenues and is administered
  by the Social Security Administration.

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Social Security Disability Insurance

• Part of Social Security
• Pays full benefits if meet eligibility
• Converts to retirement benefits at age 65
• Payments depend on prior earnings history and
  number of dependents.
• Increased by cost of living annually
• If eligible gain Medicare coverage (part A) after
  2 year waiting period

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SSDI
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Overview of receipt of transfers
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Education Characteristics of DI and SSI
beneficiaries
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Workers Compensation Insurance

• Provides cash payments and medical benefits to
  workers who incur a work-related injury or
  illness.
• State based
• Costs born by firms and hence workers
• May negatively effect employment as raises cost
  of hiring.
• A form of mandated tax that reflects experience
  of firm.
• May reduce accidents as well

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What percentage of workers with work-related
illnesses receive workers' compensation
benefits?Biddle J, Roberts K, Rosenman KD,
Welch EM.Department of Economics, College of
Human Medicine, Michigan State University, East
Lansing 48824, USA.This study estimates the
rate at which workers suffering from occupational
illnesses file for workers' compensation lost
wage benefits and identifies some of the factors
that affect the probability that a worker with an
occupational illness will file. A database of
reports of known or suspected cases of
occupational illness is matched with workers'
compensation claims data. Overall, between 9 and
45 of reported workers file for benefits. Data
limitations prevent a more precise estimate of
this rate, but a large proportion of workers with
occupational illnesses clearly does not utilize
the worker's compensation system. Logit analysis
of a choice-based sample shows that women and
employees of small firms are more likely than
others to file for worker's compensation and that
filing rates vary considerably across industries
and diagnostic categories. Acute conditions
related to the current job are no more likely to
lead to claims than chronic conditions with long
latency periods between exposure and development
of disease.
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Is Workers' Compensation Covering Uninsured
Medical Costs? Evidence from the 'Monday Effect'
Steady increases in the costs of medical care,
coupled with a rise in the fraction of workers
who lack medical care insurance, have led to a
growing concern that the Workers' Compensation
system is paying for off-the-job injuries. Many
analysts have interpreted the high rate of Monday
injuries - especially for hard-to-monitor
injuries like back sprains - as evidence of this
phenomenon. In this paper, we propose a test of
the hypothesis that higher Monday injury rates
are due to fraudulent claims. Specifically, we
compare the daily injury patterns for workers who
are more and less likely to have medical
insurance coverage, and the corresponding
differences in the fraction of injury claims that
are disputed by employers. Contrary to
expectations, we find that workers without
medical coverage are no more likely to report a
Monday injury than other workers. Similarly,
employers are no more likely to challenge a
Monday injury claim - even for workers who lack
medical insurance.
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Providing work Sheltered Workshops

• A 1998 national report indicated that sheltered
  workshop clients earned an average of 65 per
  week, while rehabilitation clients working in the
  competitive labor market earned an average 272.
  Among people with severe mental retardation,
  workshop clients earned a weekly average of 37,
  while workers in competitive employment made
  110.
• 3.5 of people in sheltered workshops move into
  competitive employment in a given year.
• Sheltered workshops receive funding from a
  combination of public vocational and
  rehabilitation programs and contracts from
  businesses. Like any enterprise, workshops need
  to provide products of high quality to survive
  and continue to receive contracts. Workshops have
  a built-in incentive to retain the most
  productive and dependable clients.
• The bulk of public funds are channeled into
  sheltered workshops and other segregated
  facilities.
• Sheltered workshops seldom have served people
  with the most severe disabilities. These people
  are deemed unproductive and unlikely to help them
  fulfill their contract work.
• In other countries, sheltered workshops have
  sometimes been more successful.

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Less than 50 percent of those who enter Voc Rehab
complete the program
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Voc Rehab data
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What is the issue around disability transfers?

• Disincentive to work. Problem is that it is
  difficult, if not impossible in many instances to
  know if a person is able to work or not (are they
  truly disabled) or whether the outlook is for a
  disability to last (be long term).
• Responses to the onset of health conditions
  depend not only on the severity of the
  impairment, but also on the social environment
  that people with health impairments
  faceincluding the availability of employment,
  the availability of accommodation, rehabilitation
  and retraining, the presence of legal supports or
  protections, and the accessibility and generosity
  of private and government transfer programs.
• More generous programs, including health
  insurance may induce people to drop out of labor
  force.
• For those less successful, less stigma to
  claiming to be disabled
• For those unemployed, may be only source of
  income after 26 weeks.

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SSI incentives-1

• Figure 6 compares the budget constraint of an
  SSI program with a 50 percent marginal tax rate,
  (t0.5) and one with a marginal tax rate of 100
  percent (t1.0). Segment ACDE of the figure
  represents the budget constraint of those not
  categorically eligible for SSI. The line has a
  slope equal to the hourly wage rate, w. Segment
  ABCDE applies to those same individuals if they
  are categorically eligible
• and they face a marginal tax rate of 100 percent.
  Benefits are taxed one dollar for each dollar
  earned and phased out at the break-even level
  (point C). That is, even though they are
  categorically eligible for benefits, their labor
  earnings offset all SSI benefits at hours levels
  greater than point C. Segment ABDE applies to
  those same people but now they face a marginal
  tax rate of 50 percent. Benefits are taxed at a
• rate of 50 cents per dollar earned and the
  break-even hours point is D. Under this model,
  categorical eligibility for SSI benefits
  unambiguously reduces work effort relative to not
  being categorically eligible.
• There is an income effect associated with the
  guarantee (AB), and a substitution effect
  associated with the marginal tax rate (BC or BD).
  The income and substitution effects work in the
  same direction, and hours of work among
  participants fall.
• Only those whose optimal hours worked prior to
  program eligibility were beyond the break-even
  hours point may not be affected and even then it
  will depend on the shape of their indifference
  curve (i.e., some would be willing to accept less
  income by substantially reducing work and living
  on program benefits).

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If tax reduced from bc (100) to bd (50), those
at 0 may increase work effort. (1). More persons
eligible --many reduce work effort (2). Some high
earners may also apply (3) and reduce work hours.
If elig. based truly on ability to work, then no
reason to reduce MTR. But if wish to encourage
work, then face this issue.
Break even pt. 50
break even pt.
Income guarantee
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SSI incentives 2

• The arrows in the Figure 6 show the various
  responses that could occur following a reduction
  in the marginal tax rate (represented by a shift
  from segment BC to BD). For individuals initially
  receiving SSI benefits and not working (i.e.,
  initially at point B), a reduction in the tax
  rate may encourage participants to work more,
  represented by Arrow 1. At the same time, a
  reduction in t expands the range of individuals
  eligible for benefits, and brings some portion of
  those categorically eligible but not previously
  receiving SSI onto the rolls. As these
  individuals move onto SSI their work effort is
  reduced, as shown by Arrow 2. Arrow 3 shows that
  some categorically eligible individuals who
  continue to earn too much under the lower tax
  rate may be motivated to reduce their hours of
  work enough to become eligible for benefits,
  thereby combining work and SSI benefits. Finally,
  it also is possible that a reduction in t will
  increase payments by enough to induce previously
  eligible persons on earnings grounds but not on
  categorical grounds (segment AC) to risk entry
  onto the rolls.
• Taking each of these possibilities into account,
  the net effect of a lower marginal tax rate on
  work effort is ambiguous. Caseloads have clearly
  increased.
• However, eligibility must be established.
  Conditional on the same impairment, tighter
  eligibility criteria are likely to increase the
  probability of denial and reduce the expected
  value of applying. Looser criteria increase the
  probability of acceptance and increase the
  expected value of applying.
• If those categorically eligible for benefits on
  health grounds are completely unable to perform
  any substantial gainful activity under any
  circumstances then there is no need to lower the
  marginal tax rate on SSI, since those on the
  program are neither expected or able to work.
  However, to the extent that work is both possible
  and expected for people with disabilities who
  meet the other eligibility criteria, policy
  discussions with respect to trade-offs between
  tax rates, guarantees, and break-even points
  become much closer to those taking place for
  other income maintenance programs.

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Evidence related to SSI and work

• Most of the individuals who apply for SSI were
  not working three years prior
• to application.
• The causes for their low employment rates at that
  time likely were more closely associated with the
  problems faced by low skilled or poorly educated
  workers generally than with specific effects of
  poor health or of the work disincentives of SSI
  or SSDI.
• only 19 percent of those who were denied SSI
  benefits were employed three years after their
  application . In contrast, 35 percent of denied
  SSDI applicants were employed three years after
  application. These patterns suggest that changes
  in program work incentives and disincentives for
  those on the SSI rolls are less likely to induce
  them to leave the rolls and return to employment
  than would be the case for SSDI beneficiaries.
• far fewer SSI beneficiaries than SSDI
  beneficiaries worked three years prior to
  application when they presumably did not have as
  a work limitation severe enough to qualify for
  benefits.
• the small amount of research that does exist on
  the work efforts of SSI recipients suggests
• that, despite special allowances for SSI
  recipients who receive earnings only a small
  percentage of disabled adult SSI recipients work.
  6.3 percent in 2001

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SS process to determine if eligible for SSDI

• To decide whether you are disabled, Social
  Security uses a step-by-step process involving
  five questions.
• They are
• Are you working? If you are working in 2004 and
  your earnings average more than 810 a month, you
  generally cannot be considered disabled. In 2005,
  that amount increases to 830. If you are not
  working, go to Step 2.
• Is your condition "severe"?
• Your condition must interfere with basic
  work-related activities for your claim to be
  considered. If it does not, SS will find that you
  are not disabled. If your condition does
  interfere with basic work-related activities, go
  to 3.
• Is your condition found in the list of disabling
  conditions? For each of the major body systems,
  SS maintaina a list of medical conditions that
  are so severe they automatically mean that you
  are disabled. If your condition is not on the
  list, SS has to decide if it is of equal severity
  to a medical condition that is on the list. If it
  is, SS will find that you are disabled. If it is
  not, then go to Step 4.
• Can you do the work you did previously? If your
  condition is severe but not at the same or equal
  level of severity as a medical condition on the
  list, then SS must determine if it interferes
  with your ability to do the work you did
  previously. If it does not, your claim will be
  denied. If it does, proceed to Step 5.
• Can you do any other type of work? If you cannot
  do the work you did in the past, SS will see if
  you are able to adjust to other work. SS will
  consider your medical conditions and your age,
  education, past work experience and any
  transferable skills you may have. If you cannot
  adjust to other work, your claim will be
  approved. If you can adjust to other work, your
  claim will be denied.

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• Disability Insured
• To qualify for disability benefits, a nonblind
  worker must have recent work activity as well as
  being fully insured.
• Under the test involving recent work experience,
  a nonblind worker who becomes age 31 or later
  must have earned at least 20 QCs among the 40
  calendar quarters ending with the quarter in
  which the disability began.
• In general, workers disabled at ages 24 through
  30 must have earned QCs in one-half of the
  calendar quarters elapsing between age 21 and the
  calendar quarter in which the disability began.
• Workers under age 24 need 6 QCs in the 12-quarter
  period ending with the quarter of disability
  onset. Workers who qualify for benefits based on
  blindness need only be fully insured. Special
  rules may apply if the worker had a prior period
  of disability.

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Legislation that changed eligibility

• The Social Security Disability Benefits Reform
  Act of 1984
• revised the mental impairment listings and
• required that the combined effect of all
  impairments be taken into consideration when
  determining eligibility for disability benefits.
• added a "medical improvement standard" in the
  continuing disability review process. The medical
  improvement standard states that an individual's
  disability benefits may be terminated on the
  basis of the disability only "if there is
  substantial evidence which shows that the
  individual's impairments have medically improved
  and the individual can now perform substantial
  gainful activity
• The U.S. Supreme Court decision Sullivan v.
  Zebley, (1990), ruled that child SSI cases were
  not judged equally to adult cases.
• Child cases cannot be accepted or rejected solely
  on the basis of whether the child's condition is
  on the Listing of Impairments, as this does not
  include any form of the "comparable severity"
  clause found in the definition of adult
  disability
• The Americans with Disabilities Act (ADA)
  "prohibits discrimination on the basis of
  disability in employment, state and local
  government, public accommodations, commercial
  facilities, transportation, and
  telecommunications" By July 26, 1994, the ADA
  required that individuals with disabilities be
  given an equal opportunity to benefit from the
  full range of opportunities available to others.
• the ADA prohibits discrimination in recruitment,
  hiring, promotions, training, pay, social
  activities, and other privileges of employment
  and helps make the work environment more
  accessible to the disabled.
• But no studies have been able to satisfactorily
  disentangle the impact of demand side factors
  related to the passage of the ADA or changes in
  the mix of jobs in the economy in the 1990s from
  supply side factors related to changes in the
  ease of access to DI and SSI benefits or to a
  reduction in the share of jobs that provide
  private health insurance, which would discourage
  work among the population with disabilities

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Americans with Disability Act of 1990 (ADA)

• Several recent empirical studies have suggested
  that the ADA, a law that broadly regulates the
  treatment of individuals with disabilities in the
  workplace and elsewhere, has reduced the
  employment of individuals with disabilities
• Does the ADAs provisions render individuals with
  disabilities more costly to employ butbecause of
  the difficulty of enforcing prohibitions on
  discrimination in hiringdo not effectively
  prevent employers from refusing to hire these
  individuals in the first place?
• Two central provisions of the ADA seem most
  likely to increase the cost of employing disabled
  individuals.
• ADA mandates that employers provide reasonable
  accommodations to individuals with
  disabilitiessuch as purchasing special equipment
  or altering workplace structures or
  proceduresunless such accommodations would
  create undue hardship for the employer.
• prohibits discriminatory discharge on the basis
  of disability, so the ADA creates firing costs
  associated with the employment of individuals
  with disabilities. These costs reflect the
  anticipated expenses (litigation and otherwise)
  of terminating disabled employees even for lawful
  reasons such costs arise because the legal
  system must now be convinced that the termination
  was not discriminatory.

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Legislation that changed eligibility-2

• The Personal Responsibility and Work Opportunity
  Reconciliation Act of 1996 (PRWORA),
• set more restrictive criteria for childhood
  disability and
• required that eligibility be redetermined using
  adult disability criteria when the child reaches
  18 years of age.
• requires continuing disability reviews not less
  than once every 3 years for all SSI beneficiaries
  under the age of 18.
• prohibits SSI eligibility for anyone who is not a
  U.S. citizen unless they are determined to be in
  a "qualified alien" category and meet certain
  other requirements such as work or military
  service or a classification as a refugee or an
  asylee.
• The Balanced Budget Act of 1997 made many of
  PRWORA's provisions inapplicable to legal
  immigrants who arrived before August 22, 1996
• 1997 Public Law 104-121 eliminated drug and
  alcohol addiction from the medical listings of
  disabilities that qualify for SSI and DI benefits
  and explicitly denied benefits to applicants
  whose primary disability was drug or alcohol
  addiction.
• The Fair Housing Act (FHA), as amended in 1988,
  makes housing more accessible to the disabled and
  prohibits discrimination on the basis of race,
  color, religion, sex, disability, familial
  status, or national origin

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• Work Incentives Improvement Act
• The Ticket to Work and Work incentives
  Improvement Act, Public Law 106-170, was enacted
  on December 17, 1999. This legislation provides
  major enhancements to SSA's programs that assist
  disabled beneficiaries who attempt to return to
  work. It provides beneficiaries more choices in
  vocational rehabilitation and other support
  services and offers expanded health care for
  beneficiaries who are no longer eligible for cash
  benefits due to work. Effective October 1, 2000,
  the Act offered extended Medicare coverage to
  beneficiaries who return to work and offers
  buy-in for Medicaid coverage.
• The Ticket to Work provisions of this legislation
  are being phased in over a 3-year period. The
  Ticket to Work emphasizes and encourages
  rehabilitation efforts and will pay private
  employment service providers for helping
  beneficiaries achieve specific work-related
  goals. These providers are called Employment
  Networks. Most disability beneficiaries will
  receive a Ticket that they may use to obtain
  vocational rehabilitation, job training, or other
  support services. Individuals may take their
  ticket to any of the Employment Networks that
  offer services in their communities, or to the
  State Vocational Rehabilitation Agency.
• During the first phase, which began in February
  2002, SSA distributed tickets to beneficiaries in
  13 states. In the second phase, which began in
  November 2002, SSA distributed tickets to
  beneficiaries in 20 more states and the District
  of Columbia. And during the third phase, which
  was scheduled to begin in November 2003, SSA will
  distribute tickets in the remaining 17 states,
  along with American Samoa, Guam, the Northern
  Mariana Islands, Puerto Rico, and the Virgin
  Islands.
• Also beginning January 1, 2001, former
  beneficiaries may have their benefits resumed if
  the benefits were terminated because of work,
  their work activity ends within 5 years of the
  month their benefits stopped and they are still
  disabled.
• How or why might you expect this to work?

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Veterans Disability System

• Compensation for Service-connected Disabilities
• Disability compensation is a monetary benefit
  paid to veterans who are disabled by injury or
  disease incurred in or aggravated during active
  military service. Individuals discharged or
  separated from military service under
  dishonorable conditions are generally not
  eligible for compensation payments. The amount of
  monthly compensation depends on the degree of
  disability, rated as the percentage of normal
  function lost. Payments in 2003 range from 104 a
  month for a 10-percent disability to 2,193 a
  month for total disability.
• Veterans who have at least a 30-percent service
  connected disability are entitled to an
  additional dependent's allowance. The amount is
  based on the number of dependents and degree of
  disability.
• Veterans' Benefits Number of veterans with
  disability compensation or pension, 2002
• Service-connected disability 2,398,000
• Non-service-connected disability 347,000
• Monthly payment in 2003 for Service-connected
  disability
• 10 percent disability 104
• Total disability 2,193

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What is optimal amount of transfer?

• Think of insurance a fully informed person would
  buy. Would an individual seek to have equal
  consumption under both circumstances?
• Considerations
• Apriori might think of wishing to have utility
  but
• enjoyment? ( ability to enjoy? Value of time?)
• Time preference
• Differential needs

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Do applications follow the business cycle?

• In general, the rate of employment and household
  income of workers fluctuate with the business
  cycle, rising during expansions and falling
  during contractions.
• on average, the employment rate and household
  income of working age people with disabilities
  are more adversely affected during economic
  downturns than are those of working-age men and
  women without disabilities.
• with respect to economic expansions a different
  pattern emerges in the 1990s than in the 1980s.
• employment and household income of all groups
  rose during the 1980s expansion,
• only the outcomes of working-age men and women
  without disabilities continued to be procyclical
  in the 1990s.
• employment rates of those with disabilities
  declined over the entire 1990s business cycle.
• the household income of men and women with
  disabilities also fell relative
• to the population without disabilities over the
  decade of the 90s.

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• To trace economic outcomes of people with
  disabilities over the business cycle Burkhauser
  et al focus on three years representing peak or
  near peak points1980, 1989, and 1999and two
  years representing trough points1982 and 1991.
• There was a general decline in the share of
  household income contributed by men over the
  1980-99 period, but the decline in the share
  contributed by men with disabilities during the
  1990s business cycle far exceeded the slight
  decline by men without disabilities.
• the share of household income contributed by men
  without disabilities fell from 66.7 percent in
  1980 to 62.3 percent in 1989, a decline of 6.8
  percent.
• Between 1989 and 1999 there was very little
  change in their share.
• The patterns for men with disabilities are quite
  different.
• Between 1980 and 1989 the share of household
  income contributed by men with disabilities fell
  from 23.0 percent in 1980 to 22.2 percent in
  1989, a decline of 3.5 percent, or about one-half
  of the percentage drop experienced by men without
  disabilities.
• between 1989 and 1999 the earnings share of
  household income contributed by men with
  disabilities fell 26.5 percent, to 17.0 percent.
• over the past 20 years the households of men with
  disabilities have become increasingly reliant on
  non-labor sources of income.
• Womens share of household earnings increased
  over this period.
• in 1999 earnings of women without disabilities
  accounted for 38.2 percent of their household
  income
• For women with disabilities this share was 14.1
  percent.
• Among men with disabilities, the share of
  household income coming from public disability
  transfers increased by 35.1 percent between 1989
  and 1999 women
• with disabilities experienced a similar increase,
  31.6 percent during the period.

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Does longer life expectancy mean more disability?
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Does longer life expectancy mean more disability?2
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Proportion of elderly with disabilities has
declined
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Age and Disability
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Mental Disorders

• World-wide, mental illness is among the most
  prevalent and disabling illnesses. In the U.S.,
  approximately 29.5 of the population is
  estimated to experience some diagnosable mental
  or addictive disorder in a 12-month period.
• The most severe mental disorders, schizophrenia,
  manic depression, and some forms of major
  depression affect about 4 of the population each
  year and are very disabling. These disorders are
  persistent illnesses that tend to have initial
  onsets relatively early in life (ages 15 to 30).
• Existing treatments contend with but do not
  cure mental illness
• persons with these illnesses require long-term
  monitoring and treatment as well as periods of
  intensive services such as hospitalization. Many
  require extended periods of assistance with
  housing and social support,
• These illnesses are correlated with other costly
  social problems unemployment, crime, violence,
  and homelessness. Many of these problems have
  consequences for others as well as the person
  with the illness. For this reason government has
  historically taken a large role in provision and
  regulation of some forms of care.
• Spending on mental health and substance abuse
  care (MH/SA) amounts to about 8.3 of personal
  health expenditures.

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Mental disorders - 2

• Estimates of the impact of mental disorders on
  labor market outcomes have used longitudinal
  data, or instrumental variables and
  cross-sectional data to find substantial
  reductions in earnings and other measures of
  productivity associated with illness.
• longitudinal data with information on prior
  illness to estimate reductions in earnings of men
  of between 20 and 25 for conditions that are
  thought to produce the most impairment such as
  psychotic disorders and major depression.
• Neuroses and other mental disorders had smaller
  but significant negative impacts on earnings (5
  to 15).
• the presence of a diagnosable mental illness
  reduced employment by about 11 for both males
  and females and for those who worked, the
  estimated loss of income attributable to mental
  illnesses was about 20 for women and 10 for
  men.

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Mental disorders -3Insufficient treatment

• Only 36 of those with manic depression or major
  depression in a year are treated in any sector,
  and only 25 of those with substance abuse are
  treated. Approximately 57 of individuals with
  schizophrenia do get some health care treatment.
• Individuals with no diagnosed condition that
  obtain treatment make almost the same number of
  visits as those with at least one diagnosed
  condition 7.9 visits per year compared to 9.3
  visits
• Spending on treatment is concentrated on those
  people with the most disabling conditions.
• in 1990 nearly 30 of spending on mental health
  and substance abuse care was accounted for by 5
  of the users of care
• For example, the mean level of spending on
  treatment of mental health and substance abuse
  care in a large insured population for 1993 was
  8 per enrollee per month, while the mean cost of
  treating someone with a diagnosis of manic
  depression was about 6,700.
• People with a history of mental health care use
  tend to incur higher levels of general health
  expenditures than do others.
• Psychiatrists and psychologists account for less
  than half of mental health professionals.
• There were about 33,500 psychiatrists and nearly
  70,000 psychologists in 1995, social
• workers, counselors, and family therapists
  accounted for 94,000, 61,000 and 46,000
  practitioners respectively.
• Mental health and substance abuse insurance
  coverage provides some coverage for
• low ranges of spending but frequently leaves
  households unprotected against more expensive
  treatment. Effort to obtain parity in the terms
  of benefit design in private insurance for MH/SA
  and general medical care.

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Does competitive employment improve nonvocational
outcomes for people with severe mental
illness?Bond GR, Resnick SG, Drake RE, Xie H,
McHugo GJ, Bebout RR.The authors examined the
cumulative effects of work on symptoms, quality
of life, and self-esteem for 149 unemployed
clients with severe mental illness receiving
vocational rehabilitation. Nonvocational measures
were assessed at 6-month intervals throughout the
18-month study period, and vocational activity
was tracked continuously. On the basis of their
predominant work activity over the study period,
participants were classified into 4 groups
competitive work, sheltered work, minimal work,
and no work. The groups did not differ at
baseline on any of the nonvocational measures.
Using mixed effects regression analysis to
examine rates of change over time, the authors
found that the competitive work group showed
higher rates of improvement in symptoms in
satisfaction with vocational services, leisure,
and finances and in self-esteem than did
participants in a combined minimal work-no work
group. The sheltered work group showed no such
advantage.
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Disability transfers and health insurance coverage

• One key aspect of the DI program which has not
  been the subject of much study is its health
  insurance component. For individuals who are
  disabled, health costs are quite high on average
  in 1998, a DI recipient had on average 4,749 in
  Medicare health costs or about 55 of the average
  yearly DI cash benefit. The health insurance
  component of DI is therefore particularly
  valuable to these disabled individuals. Thus, the
  availability of health insurance through the DI
  program, with a delay, could promote application
  among those with no other source of coverage for
  their health costs. At the same time, the fact
  that there is a waiting period, and uncertainty
  about application acceptance, implies that those
  who have health insurance that they would lose if
  they left their jobs to go onto DI will be
  deterred from application.
• Study uses data from the Health and Retirement
  Survey (HRS). This survey follows a sample of
  persons born in 1931-1941 for up to ten years
  collecting data on their sources of current and
  potential health insurance coverage, and their DI
  application and receipt.
• Core findings, there is no reduction in
  insurance coverage on net for those applying for
  or receiving DI. There is only a modest drop in
  own employer coverage, and
• this is made up by increased coverage from other
  sources, so that total insurance coverage
  actually rises for those applying and initially
  receiving DI.

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• Health Insurance Coverage and the Disability
  Insurance Application Decision  JONATHAN GRUBER
  Massachusetts Institute of Technology (MIT) -
  Department of Economics National Bureau of
  Economic Research (NBER)JEFFREY D. KUBIK
  Syracuse University - Department of
  Economics  Abstract      We investigate the
  effect of health insurance coverage on the
  decision of individuals to apply for Disability
  Insurance (DI). Those who qualify for DI receive
  public insurance under Medicare, but only after a
  two-year waiting period. This raises concerns
  that many disabled are going uninsured while they
  wait for their Medicare coverage. Moreover, the
  combination of this waiting period and the
  uncertainty about application acceptance may
  deter those with health insurance on their jobs,
  but no alternative source of coverage, from
  leaving work to apply for DI. Data from the
  Health and Retirement Survey show that, in fact,
  uninsurance does not rise during the waiting
  period for DI benefits reductions in own
  employer coverage are small, and are offset by
  increases in other sources of insurance.
  Correspondingly, we find that imperfect insurance
  coverage does deter DI application. Those who
  have an alternative source of insurance coverage
  (coverage from a spouse's employer or retiree
  coverage), are 26 to 74 more likely to apply for
  DI than those without such an alternative. Thus,
  limiting this waiting period would not increase
  the insurance coverage of the disabled in the
  U.S., but it would significantly increase
  applications to the DI program.
•  

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Economic well-being of Persons with disabilities
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Earnings by education of Disabled vs. non-disabled
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Disability Benefits, September 2004

• Number receiving SS Disabled Worker Benefits
  6,129,000
• Total Monthly benefit paid (in millions) 5,319
• Average monthly benefit 867.80
• SSI Number receiving Fedl s (millions)
  State s (m)
• 5,793,347 2,481 263
• 18-64 4,030,414 1,750 196.5
• 65 1,996,665 555 145.9
• Average monthly benefit
• 18-64, 413
• 65 298.70
• Blind and disabled only

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SSI and Welfare Reform
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Cross country comparison of ratio of Disability
transfer recipients to LFP
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U.K. system
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Netherlands system
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Fiscal Incentives Raise Student Disability Rates

• More than 35 percent of the six-year increase in
  student disability rates in Texas is explained by
  the contemporaneous increase in fiscal
  incentives."
• Student disability rates have increased by more
  than 50 percent in U.S. school districts over the
  past two decades.
• Since 1977, the proportion of students nationally
  in grades K through 12 that have been classified
  as disabled has increased from 8 percent to 12
  percent.
• Over the same period, the fraction of school
  district spending that is allocated to special
  education has increased from 4 percent to 17
  percent.
• For the 1993-4 school year, the 5.4 million
  students who received special education services
  cost taxpayers more than 32 billion in total
  spending (above what was spent for other
  students).
• a 10 percent increase in the supplemental revenue
  generated by a disabled student attributable to
  the state aid formula results in a 1.4 percent
  increase in the fraction of students classified
  as disabled. (Cullen, 2002 (NBER Working Paper
  No. 7173) )
• More than 35 percent of the six-year increase in
  student disability rates in Texas is explained by
  the contemporaneous increase in fiscal
  incentives.
• The greatest increase in student disabilities
  over this period was in the mildest and least
  well defined disability categories. These
  categories currently represent approximately 80
  percent of the special education population.
• Minority students, students in districts that
  receive declining levels of state aid, and
  students in districts with more concentrated
  enrollments are more likely to be classified as
  disabled in response to fiscal incentives,
  suggesting that school districts may be
  classifying such students for fiscal gain
• Vermont special education system shows that over
  a three-year period following a switch from
  per-pupil funding for special education to a
  total district enrollment funding model, the
  number of students receiving special education
  declined by over 17 percent. Most of the students
  who returned to general education had been
  classified with minor learning disabilities or
  speech impairments.