The Long-Term Financial and Health Outcomes of Disability Insurance Applicants

1. The Long-Term Financial and Health Outcomes of Disability Insurance Applicants Kathleen McGarry and Jonathan Skinner Presentation prepared for “Issues for Retirement Security” August 10-11, 2009

2. Overall Agenda: The Importance of Health Shocks and Health Expenses on Retirement Well-Being • “Out-of-Pocket Medical Expenditures and Retirement Security in the United States” • Presented at the NBER Aging Conference, May 2009 • “The Long-Term Financial and Health Outcomes of Disability Insurance Applicants” • RRC Annual Meeting, August 2009

3. Out-of-Pocket Spending Horror Stories • “…22 million adults with health coverage all year still spent a large chuck of their incomes—at least 10%..—for out-of-pocket medical expenses.” –NYTimes • One-half of bankruptcies are associated with “catastrophic” health care costs—Himmelstein

4. Out-of-Pocket Spending—Not so bad? • Approximately 70 percent of elderly have insurance in addition to Medicare • Medicare has recently expanded coverage to include prescription drugs • Empirical evidence shows far from devastating risk. • Palumbo found less than 1% of the elderly spent more than $13,600 per year. • Hurd average expenditures of $3000-$4000

5. Reconciling the Difference • Risk may lie in upper tail of the distribution • Difficult to measure / defining costs • Don’t measure what people can’t afford • Difficult to separate needed care from luxuries • Measurement of non-medical spending • Ramps, special food, helpers • End of life spending difficult to measure • Small sample size • Proxy reports • Elapsed time  recall problems • Time affects comparisons with survivors

6. Reconciling the Difference • Surveys miss institutionalized population may miss LTC • Cross section may miss effects of chronic disease • Miss implicit cost of informal care • Focus on areas where burden might be especially bad • Those near death • Disabled • Cumulative spending

7. Distribution of Spending by Mortality

8. Distribution of spending by type

9. Cumulative spending by mortality status (median)

10. Summary of Out-of-Pocket Spending • Particularly high at the end of life • Also where it is most difficult to measure • Serious effects on surviving spouse, heirs • Much spending in the upper tail associated with long term care needs • Cumulative effects are important • Positive correlation over time • Suggests that in addition to those at the end of life, the disabled could be at risk • May need help with ADL limitations • Custodial care • Care over an extended period of time

11. Well-Being of Disabled Population • Decline in income due to lost earnings • Does income rebound over time? • SSDI/SSI, income from other family members, recovery • Does health shock  permanent negative shock to income? • Other financial implications: • Foregone pension wealth and retiree health insurance • Consistently lower income implies: • Spend down of assets • No accumulation of wealth for retirement  Outcomes in retirement could be particularly bad • What role do OOPME play? • Higher spending vs. Medicare / Medicaid coverage

12. Sample • Use 1992-2006 HRS to construct three groups • Never applied for SSDI/SSI • Applied and were rejected • Applied and received benefits • At first observation and ever • Examine differences in: • Income • Assets • Health (self reported, mortality, depression) • Out of pocket medical spending • Particular attention to outcomes after 65+

13. Figure 1: Median Household Income by SSDI/SSI Status & Age

14. Figure 2: Median Household Assets by SSDI/SSI Status & Age

15. Figure 3: Percent Currently Depressed by SSDI/SSI Status and Age Group

18. Regression Analyses • Model Income / assets as a function of Disability status • Control for: • Age, race / ethnicity, schooling level, marital status, blue collar occupation • With and w/o self reported health, depression • Focus on indicators for SSDI / SSI status • Indicator for whether they have applied for benefits • Indicator for whether they have received benefits • Same results as in simple cross tabulations: • Application indicator is significant and negative • Benefit indicator is insignificant and small

19. Summary: • Those who applied • Lower incomes • Lower asset levels • Greater mortality • Higher depression scores • Economically (and statistically) insignificant difference between accepted and rejected applicants in most specifications • In cases with a significant difference, difference is small (e.g. $10,000 in wealth)

20. What about OOPME? • SSDI recipients have Medicare coverage • SSI recipients have Medicaid coverage  Even if they are less healthy, may not have significantly higher spending

21. Figure 4A: Median OOPME SSDI/SSI Status & Age

22. Figure 4B: Mean OOPME SSDI/SSI Status & Age

23. In regression context: • Disability application is associated with higher out-of-pocket medical spending • Offset by receipt of benefits. • Likely due to associated health insurance coverage • Medicaid indicator significant (negative) in regressions  lowers out of pocket costs • How important are costs long term?

24. Cumulative Spending Disabled--Median

25. Cumulative Spending disabled--mean

26. Cumulative Spending Disabled Couples--Median

27. Cumulative Spending Couples--Mean

28. Summary • Disabled (rejected & accepted) are significantly worse off than non-disabled in numerous dimensions • Income, wealth, and health • Not significantly different from each other • Increased health care costs for applicants, offset for those receiving disability benefits • OOP burden accumulates quickly over years

29. What might we infer about eligibility process? • Doesn’t work: • Those denied benefits appear to be in just as poor health as recipients • Does work: • Those denied benefits manage to do as well as those receive assistance • Work, family / spouse helps smooth consumption • Does work: • May be able to screen correctly but rejected applicants are scarred by time out of the labor force • Deterioration of human capital • Sends poor signal to employers

31. Conclusions • Little difference in out of pocket medical spending by disabled status • But sizable expenditures when aggregated over time, particularly relative to income and wealth

32. Figure 1J: Median Household Income by SSDI/SSI Status & Age

33. Figure 2J: Median Household Assets by SSDI/SSI Status & Age

34. Figure 3J: Percent Currently Depressed by SSDI/SSI Status and Age Group

35. Avg OOP spending disabled decedents

36. Avg OOPME disabled decedent--couples