Disability Insurance (DI) Changes in Benefit Generosity

US Social Security Disability Insurance (SSDI) provides cash payments and Medicare eligibility to workers and their families when a disability prevents someone from working. As one of the biggest social insurance programs in the world, SSDI provided approximately $147 billion to disabled American workers and their families in 2016. Roughly 5 percent of individuals between the ages of 25 and 64 receive SSDI, and about 7 percent of the US federal budget is spent on SSDI and related Medicare expenses.

MVPF SUMMARY

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Monthly SSDI payments are based on the average earnings of an individual during their highest-earning years. Gelber et al. (2017) exploit a kink in this benefit formula to examine the impact of an additional dollar of benefit receipt on labor earnings. They find that a $1 increase in SSDI benefits leads to a reduction in mean annual earnings of $0.20 four years after initial receipt. Hendren and Sprung-Keyser (2020) translate this into its implied MVPF. At an effective marginal tax and transfer rate of 20 percent, that yields a fiscal externality of $0.04 and thus an MVPF of $1/$1.04 = 0.96 (95% CI [0.95, 0.97]).