This paper uses a life cycle model to study the welfare implications of reforms to U.S. Disability Insurance (DI) while accounting for household self-insurance. In addition to crowding out the insurance value of DI, household self-insurance may drive negative selection into DI by reducing implicit application costs. Allowing for such interactions, I find that revenue-neutral expansionary DI reforms do not necessarily improve welfare. However, an asset test reduces negative selection and improves the welfare effects of DI expansions. Household self-insurance crowds out the value of DI expansions, but abstracting away from insurance value can still deliver erroneous policy recommendations.
Authors
Research Associate University of Oslo
Maxwell is a Research Associate at IFS and an Assistant Professor of Economics at the University of Oslo.
Working Paper details
- DOI
- 10.1920/wp.ifs.2022.1422
- Publisher
- Institute for Fiscal Studies
Suggested citation
Kellogg, M. (2022). Household self-insurance and the value of disability insurance in the United States. London: Institute for Fiscal Studies. Available at: https://ifs.org.uk/publications/household-self-insurance-and-value-disability-insurance-united-states-0 (accessed: 4 November 2024).
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