Screening Disability Insurance Applications

Screening Disability Insurance Applications

Philip de Jong1

Maarten Lindeboom2

Bas van der Klaauw3

February 2006

Abstract

This paper investigates the effects of intensified screening of disability insurance benefit

applications. A large-scale experiment was setup where in 2 of the 26 Dutch regions case workers

of the disability insurance administration were instructed to screen applications more intense. The

empirical results show that intense screening reduces long-term sickness absenteeism and

disability insurance applications. This provides evidence both for direct effects of the more

intensive screening on work resumption during sickness absenteeism and for self-screening by

potential disability insurance applicants. We do not find any spillover effects to the inflow into

unemployment insurance. A cost-benefit analysis shows that the costs of the intensified screening

are only a small fraction of its benefits.

1 Aarts, De Jong, Wilms & Goudriaan Public Economics B.V. and University of Amsterdam

2 Free University Amsterdam, Tinbergen Institute, IZA, HEB and Netspar

3 Free University Amsterdam, Tinbergen Institute, Scholar, IFAU, IZA and CEPR.

Address: Department of Economics, Free University Amsterdam, De Boelelaan 1105, NL--1081 HV Amsterdam, The Netherlands.

The authors thank Jonneke Bolhaar for excellent research assistance. We furthermore would like to thank John Bound, Norma Coe

and participants at seminars at Uppsala University and Utrecht University for useful comments and suggestions.

1

1 Introduction

In most OECD countries disability insurance (DI) programs are substantial in size and have

experienced strong growths in the recent decades (OECD, 2003). The Dutch DI program used to

be an extreme example of uncontrolled growth. In the early seventies, less than 4% of the

working age population was collecting DI benefits. This number increased to about 10% in the

beginning of the nineties and since then, despite a series of policy measures, remained around the

same level.1 This makes it the largest and most expensive social insurance program in the

Netherlands and a recurrent topic of in political debate.

Over the time period we consider, sick employees had a one year waiting period before

entering the DI Scheme. During this period employers are responsible for financing sick pay.2

After 13 weeks of sickness absence the employer reports the sick employee to the National Social

Insurance Institute (NSII), the public administrator of the unemployment insurance (UI) and DI

schemes. If the worker has not fully returned to work before 39 weeks, the worker and employee

file a DI benefit claim. Recently the role of the NSII changed. Until April 2002 the NSII had

during the waiting period of sickness absenteeism a joint responsibility with the sick worker and

the employer to get the sick worker back to work. Since April 2002, the NSII is no longer

involved during the waiting period. DI benefit applications should be accompanied by a

reintegration report, containing the reintegration plan as drafted after 8 weeks of sickness

absenteeism, and an assessment on why it has not (yet) resulted in work resumption. The case

worker of the NSII checks this reintegration report. If the report is delayed, incomplete, or proves

that the reintegration efforts by the sick worker and employer have been insufficient the DI

benefit application is not processed and the case worker of the NSII can decide to start a sanction

procedure. In almost all cases of noncompliance the employer is hold responsible, which means

that almost all sanctions are imposed on employers. A sanction to the employer implies that the

employer is obliged to continue sick pay for some additional months after the regular waiting

period elapsed. Sanctions to the worker are rare, but these imply that the worker receives a

reduced benefit level during the first few months of collecting DI benefits.

DI programs are often subject to moral hazard (e.g. Bound and Burkhauser, 1999). When

the costs of applying for DI benefits are relatively low, a generous DI program may cause

workers to use DI as a channel to leave the labor force and employers to use DI to lay off

redundant workers. Furthermore, when there is no or little screening of DI applications,

employers may decide to devote none or only a minimal effort in trying to get sick employees

back to work. Intensive screening of the reintegration reports accompanying the DI application

procedure can overcome both moral hazard problems. First, it forces employers to devote serious

1 For the population aged 55 years and older DI rates were as high as 22% in the mid 1990s.

2 Collective bargaining agreements ensure that sick workers receive 90 to 100% of their net salary. Most

employers have insured themselves against financing sick pay.