Thursday, March 17, 2011

The Economist: What can be done about rising disability costs?

The Economist has a good review of what's driving disability costs upwards and what people are thinking to do about it:

Ageing would seem another obvious explanation, as those aged 50-64 account for almost 60% of DI awards. But the rolls grew quickly even when the share of 50- to 64-year-olds was steady, according to David Autor of the Massachusetts Institute of Technology and Mark Duggan of the University of Maryland. Obesity does not seem to be the main cause either. Beneficiaries claiming problems such as diabetes and heart disease comprised a sliver of the awards in 2009.

A more likely culprit is the programme's structure. Messrs Autor and Duggan show that DI awards have become more attractive to those struggling in the labour market. Those awards, meanwhile, have become more accessible. In 1984 Congress made it easier for DI applicants to claim mental illness and musculoskeletal disorders such as back pain—both inherently subjective ailments. In 2009 these two conditions accounted for 22% and 31% of DI awards, respectively, about double their share in 1981. Even if an applicant does not meet DI's basic medical requirements, he may eventually win payments for other reasons. DI's rules, for example, allow an older worker unlikely to retrain to get benefits instead. Persistent applicants can seek the help of lawyers. Of those who appeal their case to a judge, almost 90% are successful.

Given DI's design, it should come as little surprise that enrolment jumps during recessions. Till von Wachter of Columbia University offers three explanations. First, impaired workers may be among the first to be sacked. After they are laid off, they may find that they qualify for DI, as is the case for many of Mr Scully's clients. Second, DI's criteria explicitly include economic factors, such as the ability to retrain. Third, those desperate for cash may use more subjective criteria, such as mental illness and "bad back", to try to win benefits. Many will fail, but they can appeal.

Read the whole article here.


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