Disability Insurance and Health in Europe and the U.S.

Enrica Croda, Università Ca' Foscari Venezia

Rising fiscal pressure from expanding DI programs has increased pressure to scale back benefits, but there is concern that such reductions will leave workers in poor health outside the safety net. We develop a model that captures this tension between budgetary costs and applicants’ health, while allowing for cross-country differences in the importance of employment opportunities, and the efficiency in screening for health-related disabilities. We test the model using SHARE and HRS. The empirical analysis shows a large variation across countries in the share of DI enrollees, from 2.3% in Greece to more than 14% in Sweden, Denmark, and the Netherlands. The evidence does not favor the conventional “tradeoff” model: DI enrollees in low-enrollment countries are no sicker than DI enrollees in high-enrollment countries. This puzzling pattern can be explained by differences across countries in the weight they place on labor market opportunities, and how well they screen for illness.