Essays on the U.S. Social Security Disability Insurance system

The Social Security Disability Insurance (DI) program is the primary public long-term disability program for disabled workers in the United States.;In the first essay, I solve and simulate a life-cycle model that characterizes detailed Social Security rules on DI and Old Age programs. The model is then used to predict the behavioral responses to a Partial Disability Benefit system that allows individuals to combine wage earnings with disability benefits. The appeal of this policy hinges on the possibility of inducing applicants to self-select themselves into a given disability level, while maintaining those with some residual work capacity in the labor force, and therefore keep them contributing through their labor taxes to the Social Security system, easing the budgetary pressures of the overall Social Security system. The current dichotomous definition of disability can result in relatively productive individuals dropping from the labor force to receive benefits in order to have access to a total income high enough to make ends meet. Instead, the new system will establish a culture of continuous attachment to the labor force in the wake of health limitations. The simulation results show that there will be significant increases in both DI applications and DI rolls under the Partial DI system, therefore the induced entry effect is expected to be large; however, most of the increases are due to increased applications for partial benefits and awards to partial benefits. In fact, applications for full DI benefits will decrease by 36.8 percent in the simulations, and full DI benefit rolls will drop by 24.2 percent. The mean duration spent on DI program will decrease dramatically from 14.4 years to 7.6 years. The budgetary and welfare calculation shows that the Partial DI system, under some conditions, can result in financial savings for the DI program as well as significant improvements in individuals' welfare.;In the second essay, I take a new look at the elasticity of disability application behavior to DI cash benefit levels by exploiting the little-noted fact that DI application of the 62-64 years old is driven by disability cash benefits only and Medicare coverage can not be the reason for these ages to apply for disability. Taking advantage of this special age window from 62 to 64, I am able to more precisely estimate the incentive effect of cash benefit levels on disability application behavior without worry about the possible bias caused by Medicare incentives of disability application since Medicare incentives do NOT exist in this age window. In particular, DI program grants Medicare coverage to disability awardees only after two years since the date of award. Thus, the 62-64 years old disability applicants, if approved, will be granted cash benefits immediately, but will be extended the Medicare coverage only after two years being on the disability roll, at which point they will be at age 65 or older when Medicare coverage is available to everybody, regardless of DI application. I infer that cash benefits offered by DI program are the main driving power for the application of the 62-64 years old. Thus, estimating the response of disability application decisions to DI cash benefit levels on this specific age window 62-64 is a natural way to separate out cash incentive effect (from health insurance effect) of DI application and get more precise estimation results than previous literature.;The Social Security Administration (SSA) has implemented a series of policy changes since the inception of the DI program. Some make use of financial incentives of DI applicants and beneficiaries to implement policy goals and others are devoted to understanding health insurance motives for DI application and participation. Separating cash incentives effect from health insurance incentives effect of disability application is informative for policymakers to evaluate the effectiveness of disability policy reforms. (Abstract shortened by UMI.);The current DI program is an all-or-nothing system and awards benefits only to full disability, not to those partially disabled. A partial Disability Insurance system amounts to essentially changing the current DI system from one that awards benefits only to those fully disabled (who have health limitations that prevent them from working completely) to one that awards also partial benefits to those partial disabled (whose health limitations interfere with their work but not prevent them from working completely) and are employing their residual work capacities in the labor force, and changing the Social Security definition of disability from a binary disability definition to a relatively continuous disability concept.