Health Care Incentives under Disability Insurance

This paper examines one of the possible factors which has contributed to the significant recent growth in the Social Security Administration's Disability Insurance program: that of health care incentives under the program. The examination of health care incentives involves a 2-period, 2-state insurance model under uncertainty which incorporates two general types of insurance. One form of insurance is disability insurance, and the other is the individual; "own" insurance or own risk bearing -- which is represented by acute care and preventive care expenditures. The model predicts a positive effect of disability insurance on acute care, while the extent to which disability insurance discourages preventive care depends largely on the effect of preventive care on the price of disability insurance. Regression estimates using data from the 1969 Longitudinal Retirement History Study(LRHS) indicate an elasticity of prescription drug expenditures (acute care) with respect to benefits of about .5, and an elasticity of use of X-rays and inoculations (preventive care) with respect to benefits of about -.004.