Modernization of the Age-Related Eligibility Standards in Disability Insurance

By Mark J. Warshawsky

November 28, 2022

Man using wheelchair

In the US, there are laxer eligibility standards for middle-age people than for younger people to get federal disability benefits through both Social Security Disability Insurance (DI) (for those who have worked) and Supplemental Security Income (SSI) (for those who have a limited work history). In essence, the current standards say that many age 50 and older, with even moderate disabilities, can be considered “unable to work” because they cannot return to their previous job, even if they are able to work at a less physically or mentally demanding job with comparable or even lesser educational requirements. By contrast, those age 49 and younger are considered by current rules as able to work, even with a fairly severe disability and modest educational backgrounds, if they fit the requirements of any other job prevalent in the economy.

Some have proposed that generous screening standards for disability benefits should be reserved for truly older workers, say those age 60 and older, where medical studies show that physical recovery from injuries starts to slow significantly. Furthermore, these reformers claim that at a time that labor force participation rates for older workers are rising and there are severe labor shortages in the economy, there is no cause for DI and SSI to function for some, in essence, as early retirement programs. They further note that there are many economic studies showing that, under current standards, there is significant work capacity in many who receive disability benefits. But disability advocates oppose these changes by claiming that middle-age workers with disabilities cannot adjust and work. What direct evidence is there on this point?

A recent working paper (brief summary here) published by the Upjohn Institute by Professors Alexander Ahammer and Analisa Packham has closely examined the experience of the Austrian disability insurance program as it gradually removed generous screening standards for those ages 57 through 59 and applied the same standards as have applied to workers age 56 and younger in the mid-2010s. An attractive feature of Professors Ahammer and Packham’s study, comparing same-age workers who experienced a workplace accident, is that it includes fairly comprehensive data from before, throughout, and after the time period of this policy change, on both subsequent employment and health experiences and the cohorts of workers getting (and not getting) disability benefits after the injury. Economists call this a “difference-in-differences” study, which is close to a random assignment experiment.

The scholars find that, controlling for other factors, stronger DI screening increases employment by 20.0 percentage points in the three years after a workplace accident. They note that this corresponds almost exactly with the number of workers who otherwise would have left the workforce within three years. Furthermore, this reduction in DI participation does not spill over to other government programs, such as unemployment insurance, and workers facing stricter eligibility standards experience higher earnings trajectories. The scholars also show evidence consistent with screened-out workers not

experiencing negative health consequences, physical or mental, or reinjury, when returning to work. Finally, they calculate that tightening age-related standards for DI has fiscal benefits to taxpayers in excess of the welfare advantage to affected workers.

The Austrian labor market is likely similar enough to the US to rely on the study’s findings, given that Austria has an even more generous social safety net system which would otherwise support exit from the workforce. Hence, the results are supportive of the claim by reformers that the current rules in the US disability programs inappropriately subsidize early retirement and burden taxpayers. Combined with the utilization of new data from the Bureau of Labor Statistics and other sources on the current physical and mental requirements of jobs in the economy, reform and modernization of DI and SSI is long overdue.

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