Bound Caswell and Waidmann 2013 — Insurance Value of Disability Insurance for Individuals with Mental Health Impairments

Summary

Using Health and Retirement Study (HRS) wave 4 linked to Social Security Administration (SSA) administrative records (ages 50–64, $N = 7{,}960$ ), Bound, Caswell, and Waidmann estimate the insurance value of Disability Insurance (DI) / Supplemental Security Income (SSI) for people with mental health impairments by comparing beneficiaries to propensity-score-reweighted controls: (a) never-applied non-beneficiaries with similar health profiles, and (b) rejected or uncertain applicants with similar profiles. The central finding is that mental illness DI beneficiaries are economically indistinguishable from rejected mental illness applicants after reweighting, while health insurance access is the largest and sharpest welfare gain. The evidence strongly refutes the narrative that mental illness applicants are "marginal" program users.

Key Claims

After propensity score reweighting, approved and rejected DI/SSI applicants with mental illness have statistically equivalent household income ( $\$19{,}394$ vs. $\$21{,}524$ reweighted, $p = 0.565$ ), net non-housing wealth ( $\$57{,}815$ vs. $\$43{,}517$ , $p = 0.589$ ), and housing wealth ( $\$21{,}978$ vs. $\$26{,}688$ , $p = 0.531$ ).
Health insurance is the sharpest benefit of award: $90.5\%$ of mental illness DI beneficiaries are insured vs. $53.1\%$ of rejected applicants with mental illness — a $37$ percentage points (pp) gap that persists after reweighting ( $49.8\%$ reweighted, $p < 0.001$ ).
DI beneficiaries with mental illness are worse off than physical disability beneficiaries on every dimension: household (HH) income ( $\$19{,}394$ vs. $\$28{,}824$ ), own earnings ( $6.6\%$ any vs. $18.9\%$ ), marriage rate ( $42.1\%$ vs. $65.2\%$ ), net non-housing wealth ( $\$57{,}815$ vs. $\$77{,}253$ ).
Only $6.6\%$ of approved mental illness beneficiaries report any own earnings, compared with $44.5\%$ of rejected applicants with mental illness — making the case that denial would reduce income without generating comparable earnings recovery.
Contrary to the "marginal applicant" narrative, rejected mental illness applicants are worse off than rejected physical-impairment applicants on nearly every well-being measure.
The program appears to accurately select applicants with the greatest income need; tightening eligibility for mental illness impairments would impose hardship on a population with near-zero alternative earnings capacity.

Concepts Introduced or Extended

Entities Mentioned

Quotes

"Contrary to what is commonly thought, those who apply for DI benefits on the basis of mental illness do not appear to be more 'marginal' applicants. In fact, persons with mental illness who have been denied DI and SSI benefits are worse off than those rejected applicants not reporting any mental illness on nearly every measure of well-being."

"Our findings suggests that the programs successfully select applicants with the greatest income needs, and that retrenchment could result in significant hardship."

My Take

This paper provides important observational evidence that DI's screening process works reasonably well for the mental illness population. The near-zero economic difference between approved and rejected mental illness applicants — both in income and wealth — is striking: the program identifies the highest-need cases even within the already-impaired applicant pool. The paper cannot causally distinguish accurate screening on unobservables from program-induced income reduction, but the near-zero own earnings of rejected applicants ( $\$0$ median) limits how much of the gap could be program-induced. The health insurance finding is the clearest welfare gain and the most policy-relevant: a $37$ pp insurance coverage gap in a population with acute healthcare needs. The finding challenges standard assumptions about mental illness claims driving program abuse and weakens the fiscal case for tighter eligibility standards for this group.