The Long-Term Financial and Health Outcomes of Disability

Insurance Applicants

Kathleen McGarry and

Jonathan SkinnerPresentation prepared for

“Issues for Retirement Security”August 10-11, 2009

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

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

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

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

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

Distribution of Spending by Mortality

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Decedents avg1.2 yrs

Survivors avg~2 yrs

mean

50th

75th

95th

Distribution of spending by type

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Hosp/NH Helper Insurance

Mean

Median

75th

95th

Cumulative spending by mortality status (median)

0

5000

10000

15000

20000

25000

Decedents Survivors

Last obs

Last + Lag

Last+2 Lags

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

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

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+

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

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

55-59 60-64 65-69 70-74

Rejected

Accepted

Never App.

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

$0

$50,000

$100,000

$150,000

$200,000

$250,000

55-59 60-64 65-69 70-74

Rejected

Accepted

Never App.

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

0

0.1

0.2

0.3

0.4

0.5

55-59 60-64 65-69 70-74

Rejected

Accepted

Never App.

0.00

0.25

0.50

0.75

1.00

40 60 80 100Age

Did Not Apply ReceivedRejected

Kaplan-Meier survival estimates, by Status

0.2

.4.6

.81

Sur

viva

l

50 60 70 80 90 100analysis time

receive=0 reject=0 reject=1receive=1

Cox proportional hazards regression

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

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)

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

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

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

55-59 60-64 65-69 70-74

Rejected

Accepted

Never App.

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

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

55-59 60-64 65-69 70-74

Rejected

Accepted

Never App.

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?

Cumulative Spending Disabled--Median

0

5000

10000

15000

Received Rejected

Last obs

Last + Lag

Last+2 Lags

Cumulative Spending disabled--mean

0

5000

10000

15000

20000

Received Rejected

Last obs

Last + Lag

Last+2 Lags

Cumulative Spending Disabled Couples--Median

0

10000

20000

30000

Received Rejected

Last obs

Last + Lag

Last+2 Lags

Cumulative Spending Couples--Mean

0

10000

20000

30000

40000

Received Rejected

Last obs

Last + Lag

Last+2 Lags

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

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

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

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

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

55-59 60-64 65-69 70-74

Rejected

Accepted

Never App.

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

$0

$50,000

$100,000

$150,000

$200,000

$250,000

55-59 60-64 65-69 70-74

Rejected

Accepted

Never App.

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

0

0.1

0.2

0.3

0.4

0.5

0.6

55-59 60-64 65-69 70-74

Rejected

Accepted

Never App.

Avg OOP spending disabled decedents

0

5000

10000

15000

20000

Received Rejected

Last obs

Last + Lag

Last+2 Lags

Avg OOPME disabled decedent--couples

0

10000

20000

30000

40000

Received Rejected

Last obs

Last + Lag

Last+2 Lags