Protecting the Household Incomes of Older Workers with Significant Health-Related Work Limitations in an Era of Fiscal Responsibility

Published: 2010


Many proposals designed to reduce federal budget deficits include retirement policy reforms that would delay workers’ access to retirement benefits or reduce the value of benefits to those who retire early. Such reforms would have adverse consequences for the economic well-being of older workers with health-related work limitations. In this paper, we explore a set of policy options that take a “work-support” approach-an earned income tax credit (EITC), an employment services allowance, and a health insurance subsidy designed to encourage and help workers continue to work if they can.

To arrive at a population that might be eligible for such benefits, we first develop a straightforward model to predict the likelihood that a worker reporting a health-related work limitation would experience economic hardship as a result. The model bounds the target population by excluding those who are not expected to experience financial hardship from earnings loss due to a health-related work limitation. It also demonstrates an approach to eligibility determination that would discourage gaming and support rapid eligibility determination-critical for a program designed to extend employment and prevent financial hardship.

Using conservative assumptions about program costs, our most expensive program would have a per capita cost of $14,600, or $11,300 if the health insurance subsidy is viewed as an ACA cost. This can be compared to estimated mean annual benefits of $14,855 in 2009 for Social Security Disability Insurance (SSDI) beneficiaries age 50 and older, plus $11,000 per year for Medicare after the 24-month waiting period. Because of its more favorable work incentives, a work-support program is likely to reduce hardship more than a program that preserves existing benefits for the same workers at comparable cost and is likely to be no more difficult to administer.

Key Findings

    • Policy proposals designed to encourage later retirement often include components to preserve existing benefits for those who have medical conditions that limit work.
    • We explore a set of policy options that favor “work support” — options designed to encourage and help workers continue to work if they can, perhaps with reduced hours or at lower paying jobs.
    • We consider three specific work-support options for eligible workers:
      • An expanded earned income tax credit (EITC), comparable to the credit currently available to parents with three children
      • An employment support allowance (ESA) — a payment to eligible workers provided that they do not apply for SSDI benefits
      • A health insurance subsidy, designed to be comparable to that specified in the Affordable Care Act (ACA) for those who purchase insurance through a health insurance exchange — an option that will presumably become available to all persons without employer coverage as health care reform is implemented
    • Our expectation is that work-support options, on average, would cost less per capita than SSDI benefits, especially if the ACA health insurance subsidy is already in place. The relative cost of these options is even lower once the cost of Medicare for SSDI beneficiaries is factored in.
    • These options would substantially reduce poverty among the families of qualified workers — by 80 percent under the most costly option.
    • A work-support program is likely to reduce hardship by more than would a program that preserves existing benefits for the same workers at comparable cost.