Does Disability Insurance Improve Health and Well-Being?

Disability insurance benefits positively influence recipients’ health and well-being.

With the challenges imposed by the demographic change on the labour market in Western societies, maintaining a sufficient size and capacity of the workforce becomes a crucial matter for political actors, employers and individuals. In many countries disability insurance (DI) is a popular exit route from the labor force (see MEA DP 05-2017). The purpose of disability insurance (DI) is to protect people with health problems that limit their ability to work. Usually, employees are provided with compensation payments and, where applicable, reintegration measures in case of developing functional impairments that limit their ability to work. However, in order to stabilize their labour force, many countries have reformed their disability insurance systems to a more restrictive scheme.  Thus, it is crucial to study the effectiveness of DI benefit programs in delivering protection by following people’s health and financial well-being after the take-up of DI benefits.

A recent study, therefore, uses SHARE data to examine the question: Does disability insurance improve health and well-being?

Analysing disability insurance benefits across countries

In order to explore the effects of receiving DI benefits on one’s health and well-being, the authors combine data of three harmonised studies which enables them to compare results for Europe, including England, as well the U.S. - the Survey of Health, Ageing and Retirement in Europe (SHARE), the English Longitudinal Study of Ageing (ELSA) and the U.S. Health and Retirement Study (HRS). The combined dataset contains data from 2004 through 2015 and amounts to nearly 270,000 observations from 23 countries. In addition to the immediate effect of receiving compensation payments and reintegration opportunities, the authors further examine the interplay between the generosity level of the DI system and its impact on health and well-being.

Disability insurance programs improve self-reported health

Based on their multinational data, Börsch-Supan et al. find that withdrawing from the labour market due to a work disability and receiving DI benefits is a relief for individuals, as stabilisation and, in some cases, even improvement of the health measures is observed in the short- and mid-term. Receiving DI benefits significantly promotes the recovery process by providing income security and integration measures. This recovery effect is observed to be slightly stronger in countries with more generous DI systems, even for work-disabled individuals who do not receive DI compensations. The authors interpret this outcome as an indication for country-specific influences, e.g. the healthcare system, which also have an immediate effect on individuals with limited ability to work. Furthermore, mental health significantly improves for DI recipients compared to non-recipients relative to their health when they first started receiving benefits.

Ample potential for disability insurance programs

From the outcomes of their study, the researchers conclude that DI benefit programs contribute to the recovery process in case of functional impairment. Although the specific impacts of work disability and DI benefits on health require further examination, the results provide clear evidence for policy makers that a DI concept can be beneficial for recipients.

Study by Axel Börsch-Supan, Tabea Bucher-Koenen and Felizia Hanemann (2017): Does Disability Insurance Improve Health and Well-Being? MEA Discussion Papers 09-2017.


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