Medical Expenditure Risk and the Value of Access to Medicare through Social Security Disability Insurance

by Seonghoon Kim, The Ohio State University

Disabled workers who receive Social Security Disability Insurance (SSDI) benefits are eligible for health insurance from Medicare two years after becoming an SSDI beneficiary. These workers typically do not have access to employer-provided health insurance, and they face a medical expenditure distribution with a large mean and a large variance, so Medicare is likely to be quite valuable to them. My dissertation addresses the following questions: (1) how does the possibility of eligibility for Medicare affect SSDI applications and labor supply? (2) how valuable is health insurance from Medicare to the population as a whole and to SSDI applicants? (3) how will workers respond to SSDI policy reforms that would affect Medicare benefits? To answer these questions, I specify a life-cycle model of labor supply, consumption, and SSDI application decisions where I explicitly account for out-of-pocket medical expenditure and health insurance. I estimate key parameters of the model using the Method of Moments, and I use the estimated model to study the value of access to Medicare through SSDI. I perform counter-factual policy simulations to answer the questions posed above e.g., eliminating the two-year waiting period of Medicare coverage for SSDI beneficiaries or mandatory health insurance purchase for uninsured individuals. Thus, the findings will have direct relevance for SSDI policy and its implications for welfare and behavior.

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