Benefit Generosity, Application Costs, and Moral Hazard: Evidence from SSI State Supplements

Abstract

This paper examines how differences in Supplemental Security Income (SSI) generosity, driven by differences in state SSI supplements, affect people’s interaction with the program.  This paper uses county-level administrative data on SSI recipiency rates, as well as county-level data on SSI application rates, SSI award rates, group specific employment rates, earnings, and migration rates to understand how SSI benefit generosity affects participation in the program as well as flows into and out of the program.  To identify the causal effect of SSI generosity on program participation, this paper uses a border discontinuity design and exploits differences over time in the maximum benefit levels between neighboring counties.

The paper found that:

• For a $100 increase in maximum SSI monthly benefits, SSI enrollment rates increase by 0.32 percentage points, or nearly 12 percent.
• The increase in enrollment is concentrated among all recipients 65 and older.
• The change in enrollment is not driven by changes in applications or awards, but seems to be driven by changes in eligibility due to changes in employment behavior.
• SSI enrollment responses are only observed after the large, salient decline in state SSI supplements in California between May 2009 and October 2009.  Otherwise, there is no observed response to SSI generosity.

The policy implications of the findings are:

• Small changes in SSI generosity do not seem to significantly change SSI application or recipiency rates.
• It is possible that large, salient decreases in SSI benefits affect enrollment levels, but this could be something specific to the California setting.
• It is unlikely that the decline in SSI applications and enrollment since the early 2010s is driven by decreases inthe real value of SSI benefits.