"Why Does Disability Increase During Recessions? Evidence from Medicare" - Colleen Carey, Cornell University

Date
Feb 7, 1:20 pm – 2:35 pm
Location
Julis Romo Rabinowitz Building, Rm 217 and via Zoom
Event Description

Colleen Carey is a visiting Assistant Professor of Economics at Princeton University. Colleen's research focuses on the industrial organization of health care, with special attention to federal regulation of health insurance markets.

Colleen Carey will be presenting in person. Viewers may also attend via Zoom.

Abstract 

Benefit awards for Social Security Disability Insurance (DI) increase during recessions and fall during expansions. We use Medicare administrative data for all DI recipients who entered Medicare between 1993 and 2017 to provide new evidence on the health of DI recipients who apply at different points in the business cycle. We find that each percentage point increase in the unemployment rate at the time of application corresponds to 4.1% more awards and 0.4% lower Medicare spending among new entrants. We then investigate whether this relationship is driven by changes in health, with deteriorating economic conditions making individuals less healthy, or by changes in the opportunity cost of applying for disability insurance, with reduced earning potential making the program more appealing. To separate these two channels, we leverage a feature of the DI eligibility process that relaxes the criteria at certain age thresholds. We find that marginal DI entrants have similar spending, regardless of whether they were induced to enter by poor economic conditions or by the age discontinuities in the eligibility criteria. The findings suggest that the opportunity-cost channel accounts for nearly all recession-related DI entry.