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Moral Hazard and Claims Deterrence in Private Disability Insurance

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  • David Autor
  • Mark Duggan
  • Jonathan Gruber

Abstract

Exploiting within-firm, over-time variation in plan parameters for nearly 10,000 Long Term Disability (LTD) policies held by US employers, we present the first empirical analysis of the determinants of private LTD spells. We find that a shorter waiting period and a higher replacement rate increase the incidence of LTD spells. Sixty percent of the latter effect is due to the mechanical censoring of shorter spells, with the remainder due to the deterrence of spells that would have continued beyond the waiting period. Deterrence is driven primarily by a reduction in the incidence of shorter duration spells and less severe disabilities.

Suggested Citation

  • David Autor & Mark Duggan & Jonathan Gruber, 2014. "Moral Hazard and Claims Deterrence in Private Disability Insurance," American Economic Journal: Applied Economics, American Economic Association, vol. 6(4), pages 110-141, October.
  • Handle: RePEc:aea:aejapp:v:6:y:2014:i:4:p:110-41
    Note: DOI: 10.1257/app.6.4.110
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    References listed on IDEAS

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    1. Eric French & Jae Song, 2014. "The Effect of Disability Insurance Receipt on Labor Supply," American Economic Journal: Economic Policy, American Economic Association, vol. 6(2), pages 291-337, May.
    2. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    3. Hahn, Jinyong, 2001. "Comment: Binary Regressors in Nonlinear Panel-Data Models with Fixed Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 16-17, January.
    4. Jonathan Gruber, 2000. "Disability Insurance Benefits and Labor Supply," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1162-1183, December.
    5. Aviva Aron-Dine & Liran Einav & Amy Finkelstein & Mark R. Cullen, 2012. "Moral Hazard in Health Insurance: How Important Is Forward Looking Behavior?," NBER Working Papers 17802, National Bureau of Economic Research, Inc.
    6. David Card & David S. Lee & Zhuan Pei, 2009. "Quasi-Experimental Identification and Estimation in the Regression Kink Design," Working Papers 1206, Princeton University, Department of Economics, Industrial Relations Section..
    7. Nicole Maestas & Kathleen J. Mullen & Alexander Strand, 2013. "Does Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Receipt," American Economic Review, American Economic Association, vol. 103(5), pages 1797-1829, August.
    8. Bruce Meyer & Wallace K. C. Mok, 2016. "Disability, Earnings, Income and Consumption," NBER Chapters,in: Social Insurance Programs (Trans-Atlantic Public Economic Seminar, TAPES) National Bureau of Economic Research, Inc.
    9. David H. Autor & Mark G. Duggan, 2006. "The Growth in the Social Security Disability Rolls: A Fiscal Crisis Unfolding," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 71-96, Summer.
    10. Bound, John, 1989. "The Health and Earnings of Rejected Disability Insurance Applicants," American Economic Review, American Economic Association, vol. 79(3), pages 482-503, June.
    11. Raj Chetty, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 173-234, April.
    12. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 2-16, January.
    13. Helen Levy, 2004. "Employer-Sponsored Disability Insurance: Where are the Gaps in Coverage?," NBER Working Papers 10382, National Bureau of Economic Research, Inc.
    14. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 27-28, January.
    15. Till von Wachter & Jae Song & Joyce Manchester, 2011. "Trends in Employment and Earnings of Allowed and Rejected Applicants to the Social Security Disability Insurance Program," American Economic Review, American Economic Association, vol. 101(7), pages 3308-3329, December.
    16. David H. Autor & Mark G. Duggan, 2003. "The Rise in the Disability Rolls and the Decline in Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 157-206.
    17. Parsons, Donald O, 1991. "The Health and Earnings of Rejected Disability Insurance Applicants: Comment," American Economic Review, American Economic Association, vol. 81(5), pages 1419-1426, December.
    18. repec:oup:restud:v:84:y:2017:i:1:p:1-44. is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Eliason, Marcus & Johansson, Per & Nilsson, Martin, 2018. "Forward-looking moral hazard in social insurance: evidence from a natural experiment," Working Paper Series 2018:11, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    2. David C. Stapleton & Yonatan Ben-Shalom & David R. Mann, 2015. "The Employment/Eligibility Service System: A New Gateway for Employment Supports and Social Security Disability Benefits," Mathematica Policy Research Reports d8835946ad2743028b4b7acfc, Mathematica Policy Research.
    3. Fevang, Elisabeth & Hardoy, Inés & Røed, Knut, 2013. "Getting Disabled Workers Back to Work: How Important Are Economic Incentives?," IZA Discussion Papers 7137, Institute of Labor Economics (IZA).
    4. repec:eee:eecrev:v:101:y:2018:i:c:p:230-249 is not listed on IDEAS
    5. repec:pal:gpprii:v:43:y:2018:i:1:d:10.1057_s41288-017-0055-2 is not listed on IDEAS
    6. Wolter H.J. Hassink & Pierre Koning & Wim Zwinkels, 2015. "Employers Opting Out of Public Disability Insurance: Selection or Incentive Effects?," Tinbergen Institute Discussion Papers 15-081/V, Tinbergen Institute.
    7. Richard V. Burkhauser & Mary C. Daly & Nicolas R. Ziebarth, 2016. "Protecting working-age people with disabilities: experiences of four industrialized nations
      [Absicherung von Personen mit Erwerbsminderung: Erfahrungen aus vier Industrieländern]
      ," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 49(4), pages 367-386, December.
    8. David Autor & Andreas Kostøl & Magne Mogstad & Bradley Setzler, 2019. "Disability Benefits, Consumption Insurance, and Household Labor Supply," American Economic Review, American Economic Association, vol. 109(7), pages 2613-2654, July.
    9. repec:wly:hlthec:v:28:y:2019:i:7:p:906-920 is not listed on IDEAS
    10. Biener, Christian & Eling, Martin & Landmann, Andreas & Pradhan, Shailee, 2018. "Can group incentives alleviate moral hazard? The role of pro-social preferences," European Economic Review, Elsevier, vol. 101(C), pages 230-249.
    11. David Stapleton & Robert Burns & Benjamin Doornink & Mary Harris & Robert Anfield & Winthrop Cashdollar & Brian Gifford & Kevin Ufier, 2015. "Targeting Early Intervention to Workers Who Need Help to Stay in the Labor Force," Mathematica Policy Research Reports 496474bae5054b11bfe429d48, Mathematica Policy Research.
    12. Matthew J. Hill & Jose I. Silva & Judit Vall Castello, 2019. "Act now: The effects of the 2008 Spanish disability reform," Health Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 906-920, July.
    13. Pian Shu, 2013. "Asset Accumulation and Labor Force Participation of Disability Insurance Applicants," Harvard Business School Working Papers 14-008, Harvard Business School.

    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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