Source of Health Insurance Coverage and Employment Survival Among Newly Disabled Workers: Evidence from the Health and Retirement Study

The onset of a work-limiting disability sets in motion a sequence of events that for a growing number of workers ends in early retirement from the labor force, SSDI application and, ultimately, long-term program participation. Exactly how this sequence of events plays out is not well understood.   While there exist large bodies of literature that address the effects of health insurance coverage on a wide range of outcomes, few papers have sought to examine how source of health insurance coverage generally and employer sponsored health insurance (ESHI) specifically affect the employment trajectory following onset of disability.  We use the nationally representative, longitudinal data from the Health and Retirement Study (HRS) to observe individuals before and after they experience a self-reported work limiting disability. To estimate the effect of ESHI on labor supply and disability claiming, we compare individuals covered by ESHI with no other employer-sponsored option (i.e., spousal coverage) with individuals covered by ESHI but whose spouses are offered coverage from their own employer. We find evidence of an “employment lock” effect of ESHI only among persons whose disabilities do not impact their immediate physical capacity but whose disability has high expected costs. We do not find any evidence of differential disability application rates between persons with ESHI and the comparison group. With the passage of the Affordable Care Act, there is concern that disability insurance applications may swell because the incentive to remain employed will diminish for disabled workers reliant on ESHI. Our results suggest that the availability of non-employment-based health insurance may cause disabled men with high cost/low severity conditions to leave the workforce but it will not necessarily lead to increased disability insurance application among individuals with ESHI.