The Importance of Private and Government Safety Nets: A Comparison of Approved and Denied SSDI Applicants*

Transcription

1 The Importance of Private and Government Safety Nets: A Comparison of Approved and Denied SSDI Applicants* Kathleen McGarry University of California, Los Angeles, and NBER mcgarry@ucla.edu Jonathan Skinner Dartmouth College and NBER jon.skinner@dartmouth.edu July 2012 Please do not cite or quote without authors permission * Prepared for the Retirement Research Consortium annual conference, August 2-3, 2012, Washington DC. This research was supported by the U.S. Social Security Administration through a grant to the National Bureau of Economic Research as part of the SSA Retirement Research Consortium and by grants to the University of Michigan and Syracuse University from the Department of Health and Human Services and the National Institute of Aging. Skinner also acknowledges financial support from NIA P01-AG The findings and conclusions expressed are solely those of the authors and do not represent the views of SSA, any agency of the Federal Government, or the NBER.

2 1. Introduction The number of individuals receiving Social Security Disability benefits (SSDI) has been steadily increasing over time. In May 2012, 8.7 million disabled workers received benefits from the SSDI Program with an average monthly payment of somewhat more than $1,111 (CBO, 2012) and enrollment in the program has been sharply increasing in the slow economy. Recent news reports, for example, highlighted the fact that between April and June of 2012, more Americans began receiving benefits from the SSDI program than found jobs. In addition to those receiving SSDI, there are approximately 3.5 million more working-age adults receiving disability income from the means tested Supplemental Security Income Program (SSI) which provides guaranteed incomes to the poor elderly, blind, and disabled (SSA, 2012). Eligibility in either SSDI or SSI provides not just cash transfers, but crucial health care coverage: SSDI recipients are entitled to Medicare two years after the initial receipt of disability benefits, while SSI recipients are eligible for Medicaid immediately upon the determination of eligibility. 1 Together these programs function to protect the well-being of those unable to work yet too young to receive retiree benefits. Yet as critical as these programs appear to be to the well-being of the disabled and their dependents, it is not clear how well they serve their mission. First, because SSDI/SSI replace only a fraction of earnings (typically 42% for the SSDI program) and cannot replace additional benefits such as pensions and retiree health insurance that one may earn during a lifetime or work, long-term SSDI/SSI beneficiaries may reach retirement age with little in the way of other resources. Second, in many cases determining eligibility may be a difficult task as the severity of the infirmity and individual s ability to work are often subjective, particularly when the disability relates to pain or mental conditions. As evidence of the subjective nature of eligibility, consider the acceptance rate illustrated in figure 1 which demonstrates the large swings over time in the portion of SSDI applicants who have their applications accepted, while other recent work has pointed to the variation across examiners in the fraction of applications they allow (Maestas et al., 2011; French and Song, 2009). The subjective nature of eligibility determination suggests that there will potentially be errors made in both directions with some of those denied benefits being truly unable to work. Similarly, some of those denied 1 For some categories of disability Medicare benefits are available sooner. 2

3 benefits may still suffer from partial disabilities that while not precluding any labor force participation, significantly limit an individual s options in the labor market. In this paper we examine the financial and health status of applicants to the SSDI/SSI programs at age 65 as they transition to old age benefits. Our goal here is to understand how prior disability affects outcomes later in life and to what degree benefits from SSDI/SSI protect individuals at older ages by replacing lost income and providing health care coverage. We compare outcomes for those who received SSDI/SSI benefits and those whose applications were denied with outcomes among those who never applied for benefits and who thus serve as our baseline group. Our analyses look specifically at income, wealth, and health status across groups. We note that because of our focus on outcomes at older ages, we necessarily exclude from our analysis those who die before age 65 and thus are likely to miss the most severely disabled. While many of these individuals and their families suffered financial hardship, we concern ourselves with outcomes among the elderly population whose disability is related more to functioning and morbidity (such as those with musculoskeletal or mental illnesses) rather than to those who die shortly after qualifying for benefits.. 2. Our earlier work (McGarry and Skinner, 2010) showed that those denied SSDI/SSI benefits were often in similar financial straits to those who received income from the program, despite the former s lack of public support. Here we therefore examine not just differences in total income and wealth but differences in income from various sources including obvious categories such as earnings and spousal income, as well as the less commonly examined assistance from family. For several reasons we expect that both groups of applicants might have negative outcomes later in life. For those receiving SSDI benefits, the benefit formula recognizes the shorter work period that disabled applicants have relative to retired workers, and therefore requires fewer covered quarters for benefit determination. However, benefits will still be lower than the disabled individual s earnings were he able to continue to work and will likely be lower than what his OASI benefits would be were he to work until the normal retirement age. These lower benefits thus depress income not only 2 Because our empirical work is based on data from the Health and Retirement Study, we observe individuals from as young as age 51. We have therefore analyzed differential mortality from entry into the HRS (at an average age of 56) until age 65 and conclude that the majority of selection among the disabled is prior to this age. 3

4 during the prime age working years, reducing the ability to save, but the lower income levels will likely continue beyond the normal retirement age and remain as such throughout their lives. Similarly, those who apply for but are denied benefits may suffer lower wages due to work limitations or through time out of the labor market and will similarly have lower savings and lower OASI retirement benefits. Other financial consequences of disability are less immediately apparent. Depending on the age at disability, the disabled worker will likely lose much of his potential pension wealth and any employer-provided retiree health insurance to which he would have been entitled had he continued to work (see Mitchell and Phillips, 2000). Additional restrictions on both future earnings (for SSDI and SSI) and wealth accumulation (for SSI) ensure that households remaining on these programs will experience modest standards of living, at best, throughout their lives. 3 Finally, one would expect the health care needs of the disabled to be greater than those of the non-disabled population. Individuals who receive SSDI income become eligible for Medicare coverage after a two year waiting period and thus have much of their health care costs covered except for those incurred during potentially costly waiting period. Similarly, SSI recipients are categorically eligible for Medicaid coverage (with no waiting period) and thus have nearly all medical care costs covered. In contrast, individuals who have some sort of work limitation but who are ruled ineligible for SSDI / SSI benefits may have health care costs that lacking insurance coverage lead to financial hardship or health care needs that go unmet (McWilliams et al., 2007). Such risks are most apparent for those who are unable to return to work and / or who lose coverage from an employer provided due to reduced hours or change in job quality. Our results suggest that conditional on living to age 65, those who applied for SSDI/SSI benefits and had their applications denied, fared as poorly (if not more so) in old age as those deemed eligible for disability benefits the income and asset levels in old age nearly identical and both are far below the levels of those who never applied to SSDI/SSI. We find further that those denied benefits offset the loss of public support through a combination of several sources of income, specifically: earnings of the applicant himself, his (or her) spouse, and some additional financial support from 3 The federal SSI asset limits are $2,000 for a single person and $3,000 for a married couple, exclusive of a home are car needed for work or medical care, and other minor items. 4

5 children. Although cash transfers from family affect only a small number of disabled, we find that both groups rely heavily on children for in-kind transfers with a substantial number receiving help with care-giving and nearly half receiving help with chores. We also find similar health outcomes for the two groups of disabled, measured as visits to a doctor, nights in a hospital, and eventual mortality. Whether these adverse effects reflect selection into the process of just applying for SSDI or SSI, or whether there are causal adverse effects of these programs (e.g., Stapleton et al., 2006), is not entirely clear. 2. Data and Methods Our data for this project come from the Health and Retirement Study (HRS). The HRS is a panel survey of the older population. The initial cohort was first interviewed in 1992 and has been interviewed biennially ever since. Additional cohorts have been added over time so that the sample is approximately representative of the population ages 51 or older. 4 We use data for each survey year from 1992 until the most recent 2010 wave and include individuals from all cohorts. To date, over 30,000 individuals have been interviewed at least once. Because our analysis examines financial resources at age 65, we limit the sample to those observed in the survey at this age. We therefore lose most of those in the older AHEAD cohort who were first interviewed at ages 70 or older, and those in the Early Baby Boomer cohort added in 2004 when they were ages and thus only in our last year of data. As emphasized earlier, we also lose those who die or are institutionalized before reaching age 65 a potentially important limitation in a study of disability. Note however, that while this selection is related in part to the use of age 65, a large portion of the selection occurs prior to the age at which individuals enter into the sampling frame of the HRS. In earlier work we included all individuals who were observed at least once in the HRS and used as our measure of well-being their financial situation at that initial interview. Mortality and other outcomes were similar for the two groups of applicants and were quite similar to the results presented here. Von Wachter, Song and Manchester (2011) present comparisons of income and mortality outcomes across application categories for individuals at younger ages. Their work does not suffer from the same selection bias that we have here and they find much larger differences 4 Detailed information on the sampling methodology and survey design is available at The HRS data are publicly available and can be obtained through the website. 5

6 between denied and accepted applicants than we do. However, because our interest is on how well those with work limitations fare at older ages, the selection does not affect our conclusions. The HRS is ideal for our study of the elderly disabled population. It provides an extremely large sample of older workers and follows them into retirement. We observe retrospective reports of whether an individual ever applied for SSDI/SSI, ever received benefits, or ever had an application denied as well as concurrent reports of this information if application occurred during the panel. The HRS contains extremely detailed information on income, wealth, out-of-pocket medical expenses, and health, including information on specific disease conditions, limitations with respect to activities of daily living, and measures of depression. We exploit these measures in our analysis to present a complete description of the situations of the disabled relative to the nondisabled when they reach old age. In addition to asking respondents numerous questions about their experience with applying for SSDI/SSI benefits, we also have measures of income from SSDI / SSI at each survey. While the data are extremely detailed, they are not perfect. Until the 2000 survey (the fifth interview for the initial cohort of respondents), the survey questions did not distinguish applications to or income from SSDI and SSI. Although both programs provide income support for the disabled, they serve different clientele. SSDI is part of the Social Security program and as such eligibility and benefits are based on work history. SSI is a means tested program for the elderly, blind, and disabled. However, it is administered by the Social Security Administration and some respondents may not understand the difference. For consistency across waves, we treat a respondent as applying for disability or receiving benefits if he applied for benefits / received benefits from either program and was less than age 65 when doing so, thus eliminating those respondents who qualified for SSI based on age. Because income questions in the HRS refer to income received in the previous year, we begin with a sample of 9,182 individuals who are observed at age 66 or 67 (and in a few cases, 68) and for whom we have non-missing information on whether they had applied for and / or received SSDI/SSI. We extend our reach beyond 66 because the biennial nature of the survey means that those who were interviewed at age 65 are next interviewed at approximately age 67 so the first report of post-64 income will be at that 6

7 age. Of these 9,182 individuals 1,009 applied for SSDI/SSI and were accepted, 468 applied and were rejected, and 7705 never applied. Thus, approximately 68 percent of those who applied in our sample were awarded benefits Results 3.1 Outcomes at Age 65: Table 1 displays means and standard errors of selected variables for this sample. Column 1 describes characteristics of the 8,824 individuals in our sample who never applied for SSDI/SSI and columns two and three show the corresponding values for those who applied but were rejected and those who eventually received SSDI/SSI. 6 Because we selected the first observation after age 65 the mean age across categories is just under 67. The fraction male is also similar across groups although females appear more likely to have had their applications rejected. Among those in our sample who never applied for SSDI/SSI, the majority are white; just 16 percent are non-white and 8 percent are Hispanic. Average schooling is 12.5 years and this group is well-off financially with average household income in 2010 dollars of 70,000, and average asset holdings of $600, Non-housing wealth is approximately two-thirds as large. This sample of non-applicants is also in good health with only 20 percent of the sample reporting that their health was fair or poor and 15 percent reported being depressed (defined as responding positively to at least 3 of the 8 CESD depression scale questions). The average number of doctor visits for these individuals over the previous two years was 8.6 but nights in a hospital average less than two. (Recall that given their age, nearly all have Medicare coverage.) In our most definitive measure of poor health, 13 percent of the sample dies before the end of the panel with an average age at death of 73, identical to the average age at the last interview all in the sample (including decedents). 5 This figure may be an over-estimate of the award rate if those who applied and were denied benefits at a younger age are less likely to remember or to report the experience. It also differs from published rates of allowed applications because it is not in a particular year but over time and because it includes applicants to SSI. 6 We do not use the sample weights for individuals. Because the weights are tied to specific cohorts, spouses who are outside the age range of the target sample have zero weight until they reach the age of an included cohort. If we were to use weights, these individuals would be excluded from the sample. The conclusions of study are unchanged if household weights are used for all individuals. 7 All dollar denominated variables are scaled to 2010 dollars. 7

8 In columns 2 and 3 we report the characteristics of our rejected and accepted SSDI/SSI applicants. 8 Conditional on reaching age 65, the two groups of applicants are remarkably similar along nearly all dimensions. For example, the racial and ethnic composition is identical, as is their schooling level and marital status. Thirty-one percent of those who applied for benefits are nonwhite, 13 percent are Hispanic, and 58 / 59 percent are partnered. Notably, average schooling is just 10.5 years (10.57 and for the two groups), less than a high school degree suggesting limited labor market opportunities, particularly with physical limitations that may restrict their ability to enter blue collar occupations. Household income and wealth are also remarkably similar for these two groups and are dramatically different from the average income and wealth for those who never applied to a disability program. 9 Income for those who were rejected for SSDI/SSI was $30,478 compared to $32,662 for recipients. Similarly, total assets were quite low for disability applicants: $175,532 for those who applied but were not accepted, compared to $210,040 for those with benefits, as were non-housing assets at $87,054 and $128,621. The greater wealth held by those who received SSDI/SSI benefits suggests that those denied benefits may spend-down their assets to support consumption or were able to save less. Perhaps the starkest measure of the difference in financial status for those who applied for SSDI/SSI and those who did not, is the difference in poverty rates across the three groups. Although these are unweighted calculations based a respondents observed in various years and shortly after age 65, the poverty rate is close to the official estimate of 8.9 percent for the elderly population in 2010 (U.S. Census, 2011). Poverty for the non-disabled group averaged just 5.7 percent but poverty rates for the two disabled groups were 20.5 and 25.3 (leading to an average of 8.5 for the combined sample) As noted earlier, in later years of the survey, respondents were asked specifically about SSDI or SSI income (rather than both together). Of those for whom a disability benefit type can be discerned, over 85 percent reported at least some income from SSDI. For those who reported in the earlier waves of the survey that their application had been rejected and who never received benefits, we do not learn whether the application was to the SSDI or SSI program. 9 As shown in table 2, household income consists of the following income categories: earnings, pension income, Social Security disability income, Social Security retirement income, unemployment insurance, workers compensation, other government assistance, all measured for both the respondent and spouse as well as household income from assets and other household income. 10 Note that the poverty rate calculated in this paper is based solely on the income of needs of the respondent and/or spouse. Income from other household members and their needs are ignored to provide a more accurate picture of the individuals own resources. We use the measure of household income provided 8

9 Even the health of the two groups of applicants is similar, regardless of the measure used. The fractions reported to be in excellent to fair health are extremely close 3 percent and 2 percent respectively, but those whose applications were accepted are somewhat more likely to report being in poor health at 29 versus 25 percent. Both groups have high rates of depression with the fraction reaching 44 percent among those who received SSDI/SSI benefits, three times as high as that for the non-applicants. Doctor visits average over 17 for each group and surprisingly are somewhat higher among the rejected applicants given the difference in reportedly poor health, but the difference is not significant. 11 The number of nights spent in a hospital by each group is nearly identical at 5.45 and The mortality experience of both groups of applicants is also comparable. Despite the similarity of health, with the accepted applicants faring marginally worse, those denied SSDI/SSI have somewhat higher out of pocket medical expenses. This result may reflect built up demand for health services that were postponed until the individual was covered by Medicare, or the inclusion of some pre-65 service use that was not covered by Medicare. 3.2 Outcomes Prior to 65: While we are most concerned with how SSDI/SSI applicants fare at older ages, it is also of interest to examine the financial and health situations earlier in their lives. How did they end up in similar positions at age 65? Were they always alike or did the denied group perhaps start out with more resources and watch them deteriorate over time in the absence of SSDI/SSI benefits? Or conversely, are those who are ruled disabled, faced with significantly higher health care burdens and other unmet needs, and experiencing a substantially larger drop in well-being? For this comparison we take a snapshot of their situation when they first apply for benefits. If this measure is unavailable either because they applied / received benefits prior to their entry into the HRS or because they never apply, we measure the value of our variables of interest at their first HRS interview. 12 The comparisons are shown in table 1b, designed in the RAND files which includes the value of food stamps (SNAP). Because food stamps are not included in official measures of income use for poverty statistics, our measure of poverty is an underestimate. 11 Also, because the rejected applicants will not have Medicare coverage until age 65, for some in the sample, the two-year look back for health services will include sometime during which they did not have Medicare benefits. This difference makes the high use of doctor services even more surprising. 12 Respondents in our sample who have no observation prior to age 65 are dropped from this analysis. Sample sizes in the table reflect this selection. We also repeated the analysis with both groups of disabled limited to those who apply for benefits after they enter into the survey. The results are similar. 9

10 to parallel table 1a although we do not repeat the reporting of sex, race / ethnicity, or schooling because they are unchanged over time. We instead include variables related to the labor market employment status and occupation type (if working). The results again show that applicants, whether they received SSDI/SSI or not, are very similar and are substantially worse off than those who never applied for benefits. The financial state of the applicants appears to stem in large part from their labor market activity. Seventy-five percent of the non-disabled group is working compared to just over 20 percent of the denied applicants and only 12 percent of those eligible for benefits. (Note that both programs permit recipients to earn a small amount of income.) While one-third of non-applicants work in blue collar occupations, over one-half of applicants work in blue collar jobs. Turning to our financial measures, because these observations are prior to age 65 (ages on average) those who are denied disability benefits but who cannot work would be expected to have lower incomes that those who received disability income. However, despite the lack of employment the average household income of those denied benefits is nearly identical to the recipients with the two groups averaging $36,000 and $37,500 respectively, compared to nearly two and a half times as much for the nonapplicants. The next few rows provide an explanation. As in table 1a, the assets for those denied benefits are similar but somewhat lower than those receiving SSDI/SSI income. And assets for both groups at $150,000 and $157,000 are far below those for the nonapplicants, who have total assets of over $400,000. Differences excluding the value of their homes are similar with the entire difference between the two groups of disability applicants attributable to non-housing wealth. The differences in poverty at this early age are far larger than at age 65, attesting to the power of Social Security in protecting those in the bottom of the income distribution. The poverty rate for the non-disabled population is 5.6 percent nearly identical to that at age 65. However, the poverty rates for the two groups of disabled elderly are 32 percent, a dramatic number that dwarfs poverty rates for most subgroups of the population. As with income, health measures are similar across the two types of applicants with those receiving benefits in somewhat worse self-reported health and are more likely to be depressed than those denied. The beneficiaries also consume somewhat more 10

11 medical service measured as the number of doctor visits and nights in a hospital, and have greater out of pocket medical expenses. This latter difference is surprising given that SSDI/SSI comes with Medicare / Medicaid eligibility but perhaps is due to our measuring medical costs soon after benefit receipt before some of those who receive benefits are eligible for Medicaid. Note that just 49 percent of this population report Medicare or Medicaid coverage a surprisingly small amount due likely to measuring the outcome at the time of application for some and, perhaps prior to Medicare eligibility (although Medicaid benefits start immediately for SSI recipients.) By any measure, both groups of disabled are substantially worse off than the non-disabled, and the differences in health are dramatic. Those who are not disabled average just 3.4 doctor visits over a two year period and less than one-half of a night in a hospital. They also have substantially lower out of pocket expenditures, despite the availability of Medicare/Medicaid to the disabled. 3.3 Components of Income: Those who receive disability benefits and those applied but were ruled ineligible, reach age 65 with approximately the same amount of total income, despite the obvious difference in income from the SSDI/SSI programs. In table 2a we therefore look at the individual components of income to understand how those denied benefits compensate for the lack of disability income. We group the income components into own income, a spouse s income (for those with a spouse), and household income because only a subsample contribute to the calculation of the mean spousal income, the averages by category do not sum to the value for total income reported at the head of the column. Examining the components of income it is apparent is that those who are not disabled have a greater attachment to the labor force even at age 65; the average annual earnings for this group are $10,000 or 5 times that for those denied disability benefits and 10 times that for those who received SSDI/SSI income. Despite the fact that individuals on SSDI are transferred to retirement benefits at age 65, our sample continues to report a good deal of income from SSDI/SSI, $3,110 among those receiving benefits. This could be SSI itself or simply the likely outcome that they continue to think of their Social Security benefits as SSDI. Similarly, the small amounts of SSDI/SSI income among those without a disability or those whose applications were rejected are consistent with a handful of respondents receiving SSI benefits. In contrast, Social Security retirement benefits are 11

12 relatively equal across groups and given the progressivity of annual benefits, not much larger for the non-disabled group. Combining all sources of government income, the rejected applicants average less than those who received benefits but the differences are not large. Spousal income can be an important source of income, particularly for those unable to work themselves. The second panel in the table presents the means of the various components of spousal income, conditional on the respondent being married. Although these are conditional comparisons, the fraction married is nearly identical across the two disabled populations. Surprising, earnings are somewhat lower for spouses of the denied group $6,935 compared to $8,231 but spousal pension amounts are higher, offsetting about one-half of the difference in earnings. Other categories of income are similar across the two groups. Again, formal market income earnings and pensions are much larger for the spouses of the non-disabled group attesting to their socioeconomic advantage. In repeating the table for our earliest observation (table 2b) there are now dramatic differences in earnings across the three groups with the non-disabled having 4.5 times the earnings of the denied applicants who in turn have somewhat more than those who were ruled eligible for benefits (if measured at the receipt of benefits, earnings are just $4,000.). The difference in earnings offsets less than one-half of the difference in SSDI/SSI income. With the exception of Social Security retirement income, other differences are small. Looking at the contribution of spouses, earnings are much higher for the spouses of non-disabled workers and slightly higher for spouses of those denied SSDI/SSI relative to those who are receiving. 3.4 Assistance from Family: Our measure of household income includes income from numerous sources: respondent and spouse earnings, pension income, SSDI/SSI, Social Security, unemployment, workers compensation, other government transfers, capital income and other household income as defined in the HRS. Missing from this total is informal transfers from family members, particularly children. Cash transfers are typically thought of as flowing from parents to children, but with disabled individuals, it 12

13 might well be that meaningful transfers flow in the opposite direction. 13 In addition, children are likely to be caregivers for needy parents, particularly those who do not have a spouse. The HRS is unusual in the detail it collects on assistance with personal care needs as well as financial assistance and provides us with the first evidence that we know of regarding how children assist a disabled parent. In table 3 we report the results. We are interested in both the frequency and magnitude of transfers from children for both at financial and time transfers and in both in the absolute levels and how they differ across disability categories. Across all groups, financial transfers are rare. Only three percent of the non-disabled group received cash assistance from a child since the previous interview but this fraction doubles for those denied SSDI/SSI benefits, suggesting that when parents are truly needy, children do offer financial assistance. Help for those receiving benefits is less common but substantially higher than for the non-disabled group. There is some weak evidence of a small crowdout effect with familial support less likely for those with government benefits. Although financial assistance is not common, when transfers are made, the amounts are large, averaging nearly $7,000 among the non-disabled (likely due the inter-generational correlation in financial well-being and thus their wealthier offspring) and approximately $4,000 for the two disabled groups. 14 Note, however, that there is almost no assistance provided with medical bills for any group. Time help from children is far more common than is financial help. Among the two groups of disability applicants, 13 to nearly 16 percent of parents received help with personal care and the average number of hours spent in the past month, conditional on some time being spent, was over 90 or more than 20 hours a week, the equivalent of a part-time job. Children also help with other activities such as IADLs (instrumental activities of daily living like shopping, cooking, etc.) and other chores (mowing a lawn, housework). Help with chores was asked only in waves 3-6 so is missing for many respondents. Thus, when examining any time help, the averages are below that for chores since the majority of respondents do not have a valid response for this most common 13 Because we are focused on outcomes at age 65, few respondents have living parents and we therefore do not examine parental assistance. 14 We suspect that the low amount of financial transfers recorded among the disabled is in part due to the financial position of the children. Children are on average years old and likely have other demands on their income. There is also a strong correlation in SES between parents and children so these children are likely to be of relatively low education and income status as are their parents. 13

14 form of help. However, when help is measured either including or excluding chores both groups of disabled are similarly likely to receive assistance and the probability is far higher than that for the non-disabled, reaching 32 or 15 percent depending on the definition. 3.5 Regression Framework: It is perhaps not so surprising to observe that those who applied at some point to SSDI/SSI have lower income and assets levels than those who do not given their lower educational attainment and differences more generally in socioeconomic status. Because we are also interested in the effects of disability itself, we use regression analyses to control for the differences in underlying characteristics and focus on the coefficients on dummy variables indicating whether the respondent applied and was rejected or applied and received benefits. The omitted category is never applied. For comparison purposes we also report the coefficients for schooling and health status which are known to be strong predictors of income and can thus help us gauge how important is disability status. Table 4 presents the coefficient estimates. For each regression we test the hypothesis that the coefficients for rejected applicants and successful applicants are equal. We rejected equality at a 5 percent level in only one case that in the regression for out-of-pocket medical expenses prior to age 65. The difference in out of pocket spending is likely due to the availability for Medicare coverage for those with SSDI/SSI benefits. In addition to disability status, in each regression we control for health status (excellent, very good, good, fair and poor), Hispanic, non-white, male, couple, and four categories of schooling (less than high school, high school, some college, college or more). In the first row we consider the coefficients for a regression of income in retirement on disability status. As shown in the table, for our sample observed immediately subsequent to age 65, (ages 66-68) there is no statistically significant difference between the coefficient for the rejected group (-$14,719) and those who received SSDI/SSI (-$11,799), although unsurprisingly both groups are significantly worse off than those who never apply to either program. Interestingly, those who received benefits are faring marginally better than those who don t, even in retirement. 14

15 We also note that while these two groups are significantly worse off than non-applicants, the difference is roughly one-quarter of that between high school and college graduates as demonstrated in the next column. The next set of rows shows the results for the regressions with household wealth as the left hand side variables. There are larger differences by disability status for wealth than for income as one would expect. Again, those who received benefits are less poorly positioned than those who did not. When focusing on non-housing wealth (financial assets) the difference between the two groups of applicants is particularly striking and suggests that those who did not receive benefits cannibalized their savings as their financial position relative to the benefits group deteriorates over time. Finally, we turn to the correlation between disability status and out-of-pocket expenditures. In the 65+ group, those whose applications were rejected experienced $1,412 more in out-of-pocket expenditures (conditional on self-reported health and socioeconomic status) compared to those who never applied, while those who receive SSDI/SSI spend just $378 more, an insignificant difference. These regressions are purely descriptive and should not be interpreted as causal in any way. However, they do suggest that the largest gap in financial status, conditional on reaching age 65, is related to whether the individual applied at any time for SSDI or SSI, and not so much whether their application was approved. 4. Conclusions and Discussion We have presented a set of results that shows a strong and consistent pattern across measures of well-being and across ages demonstrating that the longer-term outcomes for people who applied for (and may or may not have received) SSDI/SSI are substantially worse off than those who never applied. Perhaps surprisingly, we found only modest and often insignificant differences between those accepted, and those rejected for SSDI/SSI. This finding is consistent with three possible explanations. First, it is possible that all those who apply for SSDI or SSI are legitimately unhealthy, but the application and adjudication process is so complicated, and disability so difficult to discern in many cases, that it is impossible to distinguish correctly between those truly unable to work and those who can in every case. This first explanation is consistent with our results on mortality suggesting that for this extreme but objective measure, the two groups have 15

16 nearly identical long-term health outcomes. Recall that this finding is conditional on our sample selection criteria and should be treated with caution. It also contradicts several earlier studies (see Bound 1989 for a discussion) which found that those accepted to SSDI were significantly less healthy than those who were rejected. If two groups are equally disadvantaged, the similarity of incomes and assets, despite one receiving SSDI/SSI income and one not, suggests that those denied benefits have found ways to compensate for the lack of an SSDI/SSI benefit, apparently often with their own labor market activity. A second explanation for the similarity of outcomes for accepted and rejectedapplicants takes a more positive spin. It may well be that while those accepted into the SSDI/SSI programs are indeed less healthy and less able to work than those rejected, and ceteris paribus would have lower incomes and wealth, but the benefits of the SSDI/SSI income support offsets the lost income and health care costs (through Medicare eligibility), thus leaving no overall difference relative to those who are not judged to be disabled. The final explanation for our results, consistent with Parsons (1991), is that the process of applying for SSDI or SSI has permanent scarring effects on labor force participation and earning ability. Thus, the long and often drawn-out process of application, denial, appeal, and denial may have led to many of the rejected applicants becoming depressed and marginalized in the labor market. The extended spell of nonwork may lead to a deterioration of labor market skills or may provide an adverse signal to potential employers, permanently affecting the ability to earn a living (Autor, et al., 2012).In the end they fare as poorly as those with more severe disability. This scenario would explain why those denied benefits do so poorly relative to the non-disabled even after controlling for demographic characteristics. While we cannot definitely rule out (or rule in) these competing explanations in this paper these initial results are at least suggestive of broader welfare effects of SSDI/SSI than previously thought, particularly among people with functional disability rather than with life-threatening diseases. But as a greater fraction of applicants seek to claim SSDI for functional disability, the comparative well-being of these disabled applicants who live to age 65, and their ability to negotiate old age given their shortened work history, is of increasing importance for public policy. 16

17 References Autor, David H. and Mark G. Duggan, The Rise in the Disability Rolls and the Decline in Unemployment, Quarterly Journal of Economics 118(1), February 2003: Autor, David H. and Mark G. Duggan, The Growth in the Disability Insurance Roles: A Fiscal Crisis Unfolding, Journal of Economic Perspectives 20(3), Fall 2006: Autor, David, Nicole Maestas, Kathleen Mullen, and Alexander Strand, Does Delay Cause Decay? The Effect of Administrative Decision Time on the Labor Force Participation and Earnings of Disability Applicants, Paper presented at the Social Security Administration Conference: Current Perspectives on Retirement Policy, Washington DC (August, 2012). Bound, John The Health and Earnings of Disability Insurance Applicants, American Economic Review, 74: Bound, John, Richard V. Burkhauser, and Austin Nichols, Tracking the Household Income of SSDI and SSI Applicants, mimeo, Population Studies Center, University of Michigan, Burkhauser, R., Butler, J., & Gümüs G. (2003). Dynamic Modeling of the SSDI Application Timing Decision: The Importance of Policy Variables, Welfare State and Labor Market, Abstract obtained from Institute for Study of Labor (IZA), Discussion Paper No French, Eric and Jae Song, The Effect of Disability Insurance Receipt on Labor Supply, Federal Reserve Bank of Chicago Working Paper Series, WP , 2009, undated Maestas, Nicole, Kathleen Mullen, and Alexander Strand, Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Receipt, Working Paper, RAND Corporation, March McWilliams, J Michael, Ellen Meara, Alan M Zaslavsky, and John Z. Ayanian, Use of Health Services by Previously Uninsured Medicare Beneficiaries, NEJM 357: (July 12, 2007). Mitchell, Olivia S., and John W. R. Phillips, Disability, Early, and Normal Retirement, Working Paper, University of Pennsylvania, Parsons, Donald O., The Health and Earnings of Rejected Disability Insurance Applicants: Comment, The American Economic Review 81(5) (Dec., 1991):

18 Rand, RAND HRS Data Documentation, Version I, March Social Security Administration Office of Policy, Annual Statistical Report on the Social Security Disability Insurance Program, Social Security Administration, Washington DC. Publication no Social Security Administration, no date. Income of Disabled-Worker Beneficiaries, Social Security Administration Office of Policy, Annual Statistical Report on the Social Security Disability Insurance Program, Social Security Administration, Washington DC. Stapleton, David C., Bonnie L. O' Day, Gina A. Livermore, Andrew J. Imparato, Dismantling the Poverty Trap: Disability Policy for the Twenty-First Century, The Milbank Quarterly, 84(4) 2006: United States Bureau of the Census, Income, Poverty and Health Insurance Coverage in the United States: 2010, Current Population Reports, P-60 von Wachter, Till, Jae Song, and Joyce Manchester, Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program, American Economic Review 101 (December 2011):

19 Table 1a: Means by SSDI/SSI Category, Variables measured at age Applied Variable Demographic: Never Applied (N=8,824) Application Rejected (N=556) Application Accepted (N=1,181) Mean Std Err Mean Std Err Mean Std Err Age Male Nonwhite Hispanic Couple Schooling Financial: Total Income 70,378 1,148 30,478 1,104 32,662 1,281 Total Assets 602,432 17, ,532 15, ,040 50,794 Non-housing Assets 407,736 14,569 87,054 11, ,621 21,401 Percent poor Health: Excellent health Very good health Good health Fair health Poor health Depressed (0/1) Number doctor visits Number hospital nights Number ADLs OOP expenses 3, , , Died Age at death Age at last observation * Sample is of individuals observed at age with non-missing information on disability application and award. Estimates are unweighted. 19

20 Variable Table 1b: Means by SSDI/SSI Category Variables measured immediately following SSDI application or first obs Applied Never Applied* (N=7,652) Application Rejected* (N=493) Application Accepted* (N=1,087) Mean Std Err Mean Std Err Mean Std Err Demographic: Age Applied prior to survey Couple Working (0/1) Blue collar Financial: Total HH Income 85,458 1,675 36,106 1,799 37,532 1,536 Total Assets 416,094 9, ,628 16, ,180 11,210 Non-housing Assets 282,658 8,008 83,755 13,924 91,840 9,289 Percent poor Health: Excellent health Very good health Good health Fair health Poor health Depressed (0/1) Num doctor visits Num hospital nights OOP expenses 1, , ,070 1,376 Medicaid/Medicare * Classification is the same as table 1. The number of observations differs because only individuals with observations prior to age 65 are used. Table 1 uses only observations ages Numbers differ for some variables due to missing values. Not available for all years. 20

21 Variable Table 2a: Income components by SSDI/SSI Application Category Variables measured at age 65 Applied Never Applied* (N=7,652) Application Rejected* (N=493) Application Accepted* (N=1,082) Mean Std Err Mean Std Err Mean Std Err Total HH Income 70,378 1,148 30,478 1,104 32,662 1,281 Own income: Earnings 10, , Pension 7, , , SSDI/SSI , SS retirement 10, , , UI / workers comp Other govt income Spousal inc if married: (76% married) (58% married) (59% married) Earnings 11, , , Pension 6, , , SSDI/SSI SS retirement 7, , , UI / workers comp Other govt income Household income: Interest income 16, , , Other income 5, , , * Classification is the same as table 1,observations ages Numbers differ for some variables due to missing values. Not available for all years. Other income includes alimony, child support, lump sum distributions from pensions, insurance or inheritance and other income. 21

22 Variable Table 2b: Income components by SSDI/SSI Application Category Variables measured immediately following SSDI application/receipt or first obs Applied Never Applied* (N=7,652) Application Rejected* (N=493) Application Accepted* (N=1,082) Mean Std Err Mean Std Err Mean Std Err Total HH Income 85,458 1,675 36,106 1,799 37,532 1,536 Own income: Earnings 36, , , Pension 1, , , SSDI/SSI , SS retirement , UI / workers comp Other govt income , Spousal inc if married: 83% married 67% married 66% married Earnings 31, ,410 1,275 16, Pension 2, , , SSDI/SSI SS retirement , , UI / workers comp Other govt income Household income Interest income 12,338 1,429 4,558 1, Other income 3, , ,319 1,085 * Classification is the same as table 1,observations at age of first application to SSDI/SSI or first observation. Numbers differ for some variables due to missing values. 22

23 Variable Table 3: Support from Children by SSDI/SSI Application Category First observation after age 65 Applied Never Applied* (N=8,824) Application Rejected* (N=556) Application Accepted* (N=1,181) Mean Std Err Mean Std Err Mean Std Err Cash transfers % any transfers Dollar value if Dollar value if > Any help w/ medical costs Time transfers % any help w/ personal care Amount of time if > % any help w/ ADLs % any help w/ IADLs % any help w/ chores % any time help % any time help (no chores) * Classification is the same as table 1,observations ages Numbers differ for some variables due to missing values. Not available for all years. Note, question about chores is asked only in waves 3-6 so is missing for many respondents. 23