Definition
The Elimination Period (EP) is the mandatory waiting period between the onset of disability and the first payment of long-term disability (LTD) benefits. It functions like a deductible or excess clause: a worker who recovers before the EP expires receives no benefit, regardless of the severity of the impairment. Modal EP values in employer-sponsored LTD plans are 90 and 180 days (Autor, Duggan, and Gruber 2014).
Key Ideas
- Censoring vs. deterrence: Reducing the EP from 180 to 90 days approximately doubles LTD accessions. This effect has two distinct components:
- Mechanical censoring (≈60%): Genuinely short spells (e.g., 100-day disabilities) that would terminate before a 180-day EP pass through a 90-day EP. No behavior changes; the spell simply becomes an accession under the shorter EP.
- Behavioral deterrence (≈40%): Workers who anticipate that their spell will be shorter than the EP choose not to file under the longer EP because the expected benefit does not justify the administrative cost of filing. Reducing the EP brings these workers into the accession pool.
- Selection on severity: Deterred spells are the least severe — these workers return to work rather than transitioning to Social Security Disability Insurance (SSDI). A longer EP thus selects in more severely disabled claimants, raising average realized spell duration conditional on accession.
- Forward-looking mechanism: Deterrence is income-invariant, ruling out liquidity constraints (under which low-income workers would be disproportionately deterred). Workers appear to make forward-looking expected-value calculations before filing.
How It Works
Under a 180-day EP, a worker with a 120-day impairment will not file because: (a) they will recover before receiving any payment, and (b) the filing process itself imposes costs (documentation, medical records, time). Under a 90-day EP, the same worker can receive 30 days of benefit, making filing potentially worthwhile. This is the deterrence channel. Separately, a worker with a genuine 120-day spell mechanically accesses benefits under a 90-day EP but is mechanically censored under a 180-day EP — this is the censoring channel.
Why It Matters
- EP length is a key lever for LTD plan cost management. Employers who extend EP from 90 to 180 days roughly halve accessions, mostly via censoring short spells.
- The deterrence component filters out low-severity claimants, improving the average severity of the claimant pool — at the cost of denying benefits to workers with genuine but short disabilities.
- The EP analysis supports the Autor-Duggan (2010) proposal for using LTD as a screening mechanism before SSDI entry: a mandatory waiting period within LTD could deter SSDI applications by workers with high work capacity.
Open Questions
- What is the welfare cost of deterring genuine short-duration disabilities — how many workers are left uncovered for non-trivial impairments?
- Could longer EPs be offset by enhanced sick-leave mandates or short-term disability coverage?
- How does the censoring/deterrence decomposition change under different disability duration distributions across industries or demographic groups?
Related
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