Employers and Disability Insurance: Evidence from the Netherlands
Employers and Disability Insurance: Evidence from the Netherlands
Monday, June 24, 2019: 2:15 PM
Taylor - Mezzanine Level (Marriott Wardman Park Hotel)
Discussant: Priyanka Anand
Exploiting matched employer-employee data and disability insurance claims data from the Netherlands, we present evidence on the role of employers in disability insurance claiming behavior. We document substantial variation both across industries and within narrow industries across employers in disability rates. Using data on healthcare spending, we provide suggestive evidence that cross-industry variation is consistent with differences in accommodation, rather than with differential decay to disability.
In addition to worker-side factors arising from broad demographic and economic trends, employment practices may play an important role in disability insurance claiming. While current disability policies aim to limit worker-side moral hazard, employer-side moral hazard could also be substantial. If it is, understanding the role employers play in disability claiming behavior---either by contributing to the development of disabling medical conditions or by their willingness (or ability) to accommodate employees with limited work capacity---is a key ingredient for optimal disability insurance policy.
The starting point of our research is a newly documented set of facts. We show that there is substantial variation across industries in the proportion of employees that claim disability. We also show that there is important variation across employers within narrowly defined industries.
Using data on healthcare spending, we document another new fact: DI claims are associated much more with large health events, than with gradually worsening health. On average, healthcare spending increases by about 1100 euros (on a base of 2400 euros) in the years before a disability claimant would go onto sickness payment, the Dutch precursor to DI payments, but then more than triples to 12,000 euros two years before disability claims, which is the year sickness payments start. This pattern is common across industries with low and high DI claiming rates.
Finally, using health shocks, we provide suggestive evidence that cross-industry variation is consistent with differences in accommodation, rather than with differential health decay to disability. The cross-industry distribution of health shocks---proxied by large spikes to the top decile of the healthcare spending distribution---is not systematically related to the cross-industry distribution of disability claiming. Health shocks have large consequences for disability claiming and employment: 8% of non-disabled employees claim disability within 5 years of experiencing a large health shock and close to 30% stop working. However, these aggregate figures mask large cross-industry heterogeneity. In industries with low DI claiming rates, 4-6% of employees claim disability within 5 years after a health shock, while in industries with high DI claiming rates, 10-12% do.
In addition to worker-side factors arising from broad demographic and economic trends, employment practices may play an important role in disability insurance claiming. While current disability policies aim to limit worker-side moral hazard, employer-side moral hazard could also be substantial. If it is, understanding the role employers play in disability claiming behavior---either by contributing to the development of disabling medical conditions or by their willingness (or ability) to accommodate employees with limited work capacity---is a key ingredient for optimal disability insurance policy.
The starting point of our research is a newly documented set of facts. We show that there is substantial variation across industries in the proportion of employees that claim disability. We also show that there is important variation across employers within narrowly defined industries.
Using data on healthcare spending, we document another new fact: DI claims are associated much more with large health events, than with gradually worsening health. On average, healthcare spending increases by about 1100 euros (on a base of 2400 euros) in the years before a disability claimant would go onto sickness payment, the Dutch precursor to DI payments, but then more than triples to 12,000 euros two years before disability claims, which is the year sickness payments start. This pattern is common across industries with low and high DI claiming rates.
Finally, using health shocks, we provide suggestive evidence that cross-industry variation is consistent with differences in accommodation, rather than with differential health decay to disability. The cross-industry distribution of health shocks---proxied by large spikes to the top decile of the healthcare spending distribution---is not systematically related to the cross-industry distribution of disability claiming. Health shocks have large consequences for disability claiming and employment: 8% of non-disabled employees claim disability within 5 years of experiencing a large health shock and close to 30% stop working. However, these aggregate figures mask large cross-industry heterogeneity. In industries with low DI claiming rates, 4-6% of employees claim disability within 5 years after a health shock, while in industries with high DI claiming rates, 10-12% do.
