Interactions Across Various Disability Insurance (DI) Programs

This paper studies how employer-provided DI provides additional protection against the risk of income loss due to a disability, beyond the coverage provided by SSDI. I use administrative data on Wisconsin state public employees who have access to three types of employer-provided DI. The first is the Income Continuation Insurance (ICI) that pays benefits in the event of a work-limiting disability which can be either short-term or long-term. This program is optional. Workers who are interested in ICI must pay a monthly premium. The other disability programs are the Long-term Disability Insurance (LTDI) and the 40.63 Disability Retirement benefit. These two are more similar to SSDI. They cover only permanent and severe disabilities. Moreover, coverage is not optional. All workers who participate in the Wisconsin Retirement System (WRS) were covered by either LTDI or 40.63 Disability Retirement. This paper contributes to the literature by studying workers during the period before they become permanently disabled and apply for long-term DI. There is a large literature on the labor response to SSDI and return-to-work programs. However, less is known about the period prior to DI application. I am grateful to the Wisconsin Department of Employee Trust Funds (ETF) for preparing the administrative dataset that is extensively used in this paper, especially the help of Erin Esser. I also thank J. Michael Collins, Justin Sydnor, Mary Hamman, Jeffrey Smith and the participants at the Midwest Economics Association conference and the American Society of Health Economists conference for helpful comments.The risk of disability for workers is not trivial. While many workers rely on public disability programs such as the Social Security Disability Insurance (SSDI) to protect them against disability risk, these programs do not provide complete insurance. For example, SSDI does not cover short-term disabilities. This paper explores the use of employer-provided disability insurance (DI) among Wisconsin state public employees. The paper describes these disability benefits and how they provide a safety net for workers who have a debilitating medical condition. Generally, low income workers are less likely to be covered by employer-provided DI although they tend to need and claim DI at a higher rate. Next, the paper examines the use of short-term DI and worker’s trajectories before and after claiming short-term DI. A large majority (64 percent) of claimants return to work. Another 24 percent transition to long-term DI while the rest quit their jobs (7 percent) or retire (5 percent). Short-term DI claimants are able to maintain their earnings and hours worked up to the year of claim. Afterwards, their earnings and hours worked drop even for those who return to work. Moreover, workers who eventually claim short-term DI use a lot of sick leave even in the years prior to claiming.U.S. Social Security Administration - Retirement and Disability Consortiu