Household Self-Insurance and the Value of Disability Insurance in the United States

Household Self-Insurance and the Value of Disability Insurance in the United States lnstitute for Fiscal Studies Maxwell Kellogg Household Self-Insurance and the Value of Disability Insurance in the United States 22/14 Working paper Household Self-Insurance and the Value of Disability Insurance in the United States By Maxwell Kellogg* Draft: March 31, 2022 This paper uses a life cycle model to stu. [...] Conventional adjustments to the leniency of DI allowance or the generosity of DI benefts maintain 26 to 38 percent of their value in the absence of health risks, which can instead be attributed to reallocation across the life cycle and across non-health dimensions of the state space. [...] Additionally, it requires an assumption related to sampling and non-response in the PSID: namely, that when households appear in the survey (with respect to age or calendar time) is unrelated to 7Characteristics are residualized with respect to age of the reference person and calendar year, to control for diferences arising due to when the household was sampled by the PSID. [...] Diferentiating the preferences of Equation 2 with respect to consumption makes clear the log-additive relationship underlying the 11When I estimate the consumption regression in sample, I account for part-time work in the same way that full-time work enters the regression equation. [...] While the model performs well at replicating the targeted features of the data, additional untar- geted features can reveal how realistically the model captures key aspects of the household problem that are relevant for studying the DI system.