IFS Seminar: Max Kellogg (NBER/Oslo)

Title: Household Self-Insurance and the Value of Disability Insurance in the United States
Abstract: This paper uses a life cycle model to study the welfare implications of reforms to the U.S. Disability Insurance (DI) system while accounting for household self-insurance. In addition to crowding out the insurance value of DI, household self-insurance may drive negative selection into DI by reducing implicit application costs. Allowing for such interactions, this paper finds that simple expansionary DI reforms do not necessarily improve welfare unless implemented alongside an asset test. Households prefer an asset-tested DI system with lower application costs, but not because of better insurance against health risks. Household self-insurance crowds out the value of DI expansions, but abstracting away from insurance value can deliver erroneous policy recommendations.