The Effect of Economic Conditions on the Disability Insurance Program: Evidence from the Great Recession

"...The Great Recession led 1.4 million former workers to apply for SSDI benefits during 2008- 2012. Of these, nearly 1 million (72 percent) would not have applied if the recession had not occurred, while the rest (28 percent) would have applied anyway, but at a later date.By the recession’s peak, the system was receiving 16.5 percent more applications than usual, resulting in substantial processing backlogs. Induced applicants (excluding the accelerated applicants) accounted for 11.6 percent of all applications filed during 2008-2012. More than one-half million of the recession-induced applicants were awarded benefits. Over 400,000 were awards to people who otherwise would not have entered the SSDI program, while the rest were awards to people who would have entered the program anyway in the near future. The induced awardees were more likely to have been allowed on appeal than on initial review—53 percent of the induced new beneficiaries were allowed on appeal (rather than on initial review), compared to 37 percent of all new beneficiaries during 2008-2012. On net, the induced awardees (excluding accelerated awardees) made up 8.9 percent of all new beneficiaries who entered SSDI during 2008-2012.While some people with automatically-qualifying disabilities choose to work rather than claim SSDI benefits, we find little evidence that the recession-induced applicants came from this group. In fact, the induced applicants had less severe impairments and were more likely to have transferable skills. They were either allowed for medical-vocational reasons (33 percent) or denied (58 percent); relatively few were allowed for severe, listing-level impairments (9 percent). The mean allowance rate among induced applicants was 42 percent (accounting for appeals), substantially lower than the average allowance rate of 54 percent for the system as a whole. Perhaps not surprisingly, 58.7 percent of the induced applicants who were awarded benefits had a musculoskeletal or mental impairment, a somewhat higher proportion than in the general population of applicants. Importantly, we find the Great Recession does not account for the decline in the hearinglevel allowance rate that began in 2011, when SSA introduced focused reviews and new training initiatives to improve the quality of judicial decision-making. Our estimates imply that absent the effects of the Great Recession, the hearing-level allowance rate would have had a sharp decline anyway, beginning with the appellate hearings held for applications that were initially filed in 2010, and that would have had hearings in 2011 or later. The impact of the Great Recession is economically significant. In terms of human capital, over 400,000 workers were awarded benefits who would not otherwise have entered the program. Because working above SGA after program entry is rare, this corresponds to a nearpermanent decline in productive capacity. In terms of the fiscal health of the U.S. disability insurance system, both contemporaneous and future SSDI program costs increased significantly. Administrative claims processing costs rose by $2.960 billion dollars during 2008-2012, while SSDI benefit obligations increased by $55.730 billion in present value, or by $97.365 billion when the present value of Medicare benefits is included...."
Nicole Maestas, Kathleen J. Mullen and Alexander Strand "The Effect of Economic Conditions on the Disability Insurance Program: Evidence from the Great Recession," National Bureau of Economic Research, December 2018, https://www.nber.org/papers/w25338