Estimates of the Potential Insurance Value of Disability Insurance for Individuals with Mental Health Impairments

Published: 2013


Since the mid-1980s there has been dramatic growth in the number and fraction of DI and SSI beneficiaries with mental illness. With longer life expectancies and younger ages of disability onset than beneficiaries with physical impairments, their growth exerts added fiscal pressure on the programs.  While not specifically focused on mental illness, fears of an increase in the duration (and thus prevalence) of disability claims that may result from this demographic shift have generated calls to tighten eligibility rules again. Using data from the Health and Retirement Study linked to SSA administrative records, we created statistically matched control groups of non-beneficiaries with severe mental illness. We then estimated the earnings, income, and health insurance coverage among rejected DI/SSI applicants with mental illness who have characteristics comparable to persons awarded benefits on the basis of mental impairments. We found that even after controlling for health and demographic characteristics, DI beneficiaries were substantially worse off than rejected applicants in terms of wealth and income. While these rejected applicants with mental illness were worse off than those with physical impairments, our findings suggests that the programs successfully select applicants with the greatest income needs, and that retrenchment could result in significant hardship.

Key Findings

    • We find that while federal and state disability insurance programs may not fully make up for income and wealth deficits experienced by persons with mental disabilities, they are an important source of support.
    • For those without mental illness, the DI and SSI programs increase per capita household income of successful applicants above that of rejected applicants, but the same is not true for those with mental illness.
    • Persons with mental illness who have been denied DI or SSI benefits are worse off than those rejected applicants not reporting any mental illness on nearly every measure of well-being.
    • Successful applicants with mental illness are worse off than successful applicants with only physical disabilities.
    • The DI/SSI screening process may be accurately discriminating between applicants on unobservable characteristics, selecting those with the most difficulty generating income.