Does Access to Health Insurance Influence Work Effort Among Disability Cash Benefit Recipients?

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There is considerable policy concern about “DI lock” – that tying public health insurance coverage to cash disability benefit receipt contributes to the low exit rates due to work. This concern led Congress to institute continued health insurance eligibility for disability beneficiaries who leave the rolls to work. However, unlike the long literature on “job lock,” the importance of the DI lock hypothesis – either before or after these extensions – has remained unquantified.

This paper tests whether a “perceived DI lock” remains among disability beneficiaries, and whether state health insurance policies help alleviate the problem and encourage work among beneficiaries. The analysis includes both DI and SSI beneficiaries, and tests if there are differential patterns between the two programs. We exploit variation in the access and cost of health insurance caused by: regulation of the non-group market, the existence of Medicaid buy-in programs, Medicaid generosity, and disability and health insurance program interactions. While overall we find no evidence of any persistent DI-lock, heterogeneity is very important in this context. Our estimates suggest that increasing health insurance access does increase the likelihood of positive earnings among a subset of disability beneficiaries. We find evidence of remaining DI lock among individuals who do not have access to supplemental health insurance outside of Medicare. Medicaid buy-in programs alleviate the remaining DI lock. We find evidence of SSI lock among beneficiaries with some Medicaid expenditures, and that both non-group health insurance regulation and generous Medicaid eligibility help alleviate the problem.