Temporary disability insurance reduces SS applications, new beneficiaries, study finds

The temporary disability insurance typically included in family medical leave programs has spawned a lively debate in the benefits industry. Does this insurance serve as an on-ramp to Social Security’s disability insurance program and increase enrollment, or does it enable older workers to adjust to health shocks and resume working?

Workers can access temporary disability insurance only if they live in states with mandates or if their employer voluntarily offers this benefit. The Center for Retirement Research at Boston College tracked the experiences of full-time workers aged 50 to 60 who had experienced a work-limiting disability. The sample was divided into two groups — those with a persistent and severe disability who were potential disability insurance applicants and those with less-severe impairments who were unlikely to qualify for disability insurance.

Among those with severe disabilities:

• Up to four years after the onset of the disability, 39% of potential Social Security disability insurance applicants had submitted a claim in non-mandate states, compared to only 27% in states with a temporary disability insurance mandate.
• This drop in applications, however, produced only a small decline in actual benefit receipt, suggesting that most of those who didn’t apply likely would not have qualified.
• In terms of employment, up to four years later, only 39% of potential Social Security disability applicants were employed in non-mandate states, compared to 61% in states with a temporary disability insurance mandate.

“These findings seem to confirm that the drop in applications not only alleviates the administrative burden for the Social Security Administration but also allows would-be applicants to continue working,” said Alicia H. Munnell, director of the research center.

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Among those with less-severe impairment, access to temporary disability insurance had no impact on the share of workers who applied for or received Social Security disability insurance. However, it does seem to reduce employment. Although the employment rate was 65% in non-mandate states up to four years after disability onset, it was only 50% in states with a mandate.

“This study should relieve concerns that expanding temporary disability insurance will adversely affect Social Security disability insurance,” Munnell said. “For those with severe disabilities, temporary disability insurance appears to reduce the Social Security disability insurance application rate a lot, the disability rolls a little and increase employment up to four years after a health shock.

“For those with less-severe conditions, temporary disability insurance has no impact on Social Security disability insurance applications or acceptances. The only somewhat worrying result is that temporary disability insurance seems to lead to earlier retirement for those with less-severe impairments.”