Disability Insurance (DI) Program Examiner Leniency

US Social Security Disability Insurance (SSDI) provides cash payments and Medicare eligibility to workers and their families when a disability prevents someone from substantial work. 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.

Maestas et al. (2013) estimates the causal impact of SSDI on the employment of applicants by taking advantage of the random assignment of Social Security Disability Insurance (SSDI) applicants to program examiners, which generates variation in SSDI receipt. Hendren and Sprung-Keyser (2020) translate these estimates into their implied MVPF.

MVPF SUMMARY

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Hendren and Sprung-Keyser (2020) calculate willingness to pay for SSDI receipt to be $16,179. This number is calculated based on an average benefit amount per SSDI recipient of $20,024 and the finding in Maestas et al. (2013) that SSDI receipt causes 19.2% of individuals to reduce their earnings under the income eligibility threshold. Together, this provides the mechanical cost of the transfer and means the counter-factual transfer per recipient is = $20,024*(1-0.192) = $16,179.

To calculate the net cost to the government, Hendren and Sprung-Keyser (2020) begin with the mechanical transfer of $16,179 and the additional transfer cost of $3,845 based on those who reduce their earnings to receive the SSDI benefit. Next, Hendren and Sprung-Keyser (2020) use the finding in Maestas et al. (2013) that marginal SSDI recipients have $3,781 less in labor earnings two years after initially receiving DI. At an effective marginal tax and transfer rate of 19.9 percent determined by their estimates using Congressional Budget Office data, this corresponds to an additional fiscal externality of $3,781*19.9% = $752. Putting these figures together, Hendren and Sprung-Keyser (2020) get an MVPF of $16,179/ ($16,179 + $3,845 + $752) = 0.78 (95% CI [0.72, 0.85]).