Temporary Disability Insurance Prevents Some Early Retirements

Congress has, for decades, tossed around various proposals for a permanent national paid leave program that would give workers time off for an illness or to care for a sick family member. The idea gained traction during COVID when so many Americans became ill.

But none of the proposals have passed amid disagreement over the impact of paid-leave policies. Proponents at the state and federal levels argue that compensating injured or sick workers who take time off allows them to recuperate and eventually get back to work. But others worry that paid leave provides just enough income to pay the bills so workers have time to apply for federal disability and drop out of the labor force permanently.

So what are the policy’s true effects? A new study examines the impact on full-time workers between ages 50 and 60 in states that provide injured or sick workers with a specific paid-leave benefit, known as temporary disability insurance, or TDI.

Fifteen states already have TDI mandates. They are usually funded through a payroll tax and typically pay workers around 60 percent of their earnings over a six-month period.  

Older workers are more likely to get injured in the first place, and they often have more difficulty recovering from an injury or serious illness than their younger coworkers. For this reason, older workers may be more vulnerable to applying for disability or retiring early.

In an analysis of four states that have had TDI mandates in place for decades, the researchers found that six out of 10 older workers with relatively serious first-time injuries or medical impairments were still in the labor force four years after developing the condition. In states without a mandate, only four out of 10 were still working four years later.

There were also fewer applications for federal disability benefits in the states with mandates: only 27 percent of the older workers had done so, despite having impairments that might be bad enough to warrant applying for disability. But 39 percent applied in the states that do not have the TDI benefit.

These findings seem to indicate that TDI provides the income workers need to either recover and get back to work, perhaps with an accommodation from an existing employer, or find another job more suited to their new needs.

Older workers with less severe injuries or medical problems reacted very differently. Only half in the states with TDI mandates were still working four years after their injuries. But two-thirds continued to work in the states that do not provide paid leave. Since these workers are unlikely to qualify for disability, the absence of TDI meant they had to keep working, despite their conditions.

But for the older workers with less severe conditions, “TDI seems to lead to earlier retirement,” the researchers concluded.

To read this brief by Siyan Liu, Laura Quinby, and James Giles, see “Does Temporary Disability Insurance Reduce Reliance on Social Security?”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium.  The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College.  Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report.  Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.